    International Energy: International Forums Contribute to Energy
    Cooperation within Constraints (19-DEC-06, GAO-07-170).

    Rising oil prices, resulting from growth in energy consumption by
    rapidly developing Asian nations and by most industrialized
    nations, have increased concern about competition over oil and
    natural gas resources. In particular, Congress expressed interest
    in how the United States participates in energy cooperation
    through international forums. GAO was asked to review: (1) what
    are the key international energy forums in which the United
    States pursues energy cooperation, (2) what are some of the key
    emerging energy market issues that are important for
    international energy cooperation, and (3) how is the United
    States addressing these issues through its participation in these
    forums. GAO's work is based on contacts with agency officials and
    energy experts and review of documents.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-170
        ACCNO:   A64327
      TITLE:     International Energy: International Forums Contribute to
    Energy Cooperation within Constraints
         DATE:   12/19/2006
      SUBJECT:   Conservation
    	     Crude oil
    	     Economic growth
    	     Energy policy
    	     Gas resources
    	     International agreements
    	     International cooperation
    	     International relations
    	     National policies
    	     Natural gas
    	     Natural resource management
    	     Petroleum industry
    	     Prices and pricing
    	     Trade agreements
    	     Supply and demand

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    GAO-07-170

                     United States Government Accountability Office

    GAO

    Report to the Chairman, Committee on International Relations,
    House of Representatives

    December 2006

    INTERNATIONAL ENERGY

        International Forums Contribute to Energy Cooperation within Constraints

    GAO-07-170

    INTERNATIONAL ENERGY

    International Forums Contribute to Energy Cooperation within Constraints

      What GAO Found

    The United States pursues energy cooperation through several international
    energy forums designed to meet specific cooperative needs. They include a
    formal institution with binding petroleum reserve obligations, regional
    associations, and informal gatherings designed to facilitate information
    exchange. Major forums include the International Energy Agency (IEA), the
    Asia Pacific Economic Cooperation Energy Working Group, the North American
    Energy Working Group, and the International Energy Forum.

    GAO identified three energy market issues that are important for U.S.
    efforts in international energy cooperation. First, a tighter energy
    market with higher, more volatile, prices has developed. This is due to
    (1) an unanticipated rise in energy demand and (2) constrained supply due
    to less spare crude oil production capacity and increased political
    frictions in certain supplier countries. Second, market participation of
    national oil and gas companies, which are majority owned by governments,
    has led to limitations on access to resources. Third, more reliable energy
    market information is needed to facilitate market stability and plan
    investment.

    The U.S. government has addressed these issues through its participation
    in international energy cooperation forums; however, the nature of the
    forums can limit their impact. Forums have restricted membership,
    consensus-based agendas and decisions, and voluntary participation. They
    generally focus on noncontroversial issues such as energy efficiency and
    technology. Within these constraints, the United States has tried to
    mitigate effects of tight markets by supporting emergency preparedness. It
    has not directly addressed the impact of national oil companies, but it
    has pursued related areas. It has sought to improve energy information,
    but Energy Information Administration (EIA) statistical expertise has not
    been consistently leveraged for purposes beyond data exchange, and U.S.
    data submissions to the IEA have not been timely.

    Top World Oil Net Importers, 2004 Net oil imports(million barrels per day)

    United Japan China Germany South France Italy Spain India
    StatesKorea

    Source: GAO analysis of EIA data.

    Note: This  includes  all countries  that  imported more  than  1  million
    barrels per day net in 2004.

                     United States Government Accountability Office

    Contents

    Letter 1
    Results in Brief 2
    Background 4
    The United States Pursues Energy Cooperation through
    International Energy Forums Designed to Meet Specific Cooperative Needs 8
    Emerging Energy Market Issues Include Tight Markets, Growing
    Role of  National  Oil Companies,  and  Increased Importance  of  Reliable
    Market Information 14
    Important Constraints Affect U.S. Ability to Address Key Energy
    Market Issues in Forums 27
    Conclusions 37
    Recommendations for Executive Action 39
    Agency Comments and Our Evaluation 39
    Appendix IV Comments from the Department of Energy 52
    GAO Comments 64

    Appendix I Objectives, Scope, and Methodology

    Appendix II July 2006 G-8 Summit and Bilateral Energy Cooperation Forums

    Appendix III Role of Natural Gas Is Increasing in Tight Energy Market

    Appendix V Comments from the Department of Commerce

    Appendix VI Comments from the Department of State

    Appendix VII GAO Contact and Staff Acknowledgments

    Tables
                  Table 1: Overview of Major International Energy Cooperation
               Forums                                                           8
                 Table 2: Top World Oil Consumers, with Level of Demand and
                        Percentage Change, 2000-2004, and Share of Total World
               Market in 2004                                                  16
    Figures
                  Figure 1: U.S. Crude Oil Production and Demand, 1980-2030     5
                 Figure 2: U.S. Natural Gas Production and Demand, 1980-2030    6
                         Figure 3: Top World Oil Net Importers, 2004           17
               Figure 4: Top 10 Companies Based on Oil Production and Reserves
               Holdings, 2004                                                  21
                   Figure 5: Top 10 Companies Based on Gas Production and
                                   Reserves Holdings, 2004                     22
                     Figure 6: Top World Dry Natural Gas Consumers, 2004       48
                   Figure 7: Top World Dry Natural Gas Net Importers, 2004     49
                     Figure 8: Top World Dry Natural Gas Producers, 2004       50

    Abbreviations

    APEC             Asia Pacific Economic Cooperation
    DOE              Department of Energy
    EIA              Energy Information Administration
    EUROSTAT         European Communities
    G-8              Group of Eight
    GDP              gross domestic product
    IEA              International Energy Agency
    IEF              International Energy Forum
    JODI             Joint Oil Data Initiative
    LNG              liquefied natural gas
    NAEWG            North American Energy Working Group
    OECD             Organization of Economic Cooperation and Development
    OLADE            Organization Latinamericana de Energia
    OPEC             Organization of Petroleum Exporting Countries
    UNSD             United Nations Statistics Division

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office Washington, DC 20548

    December 19, 2006

    The Honorable Henry J. Hyde
    Chairman
    Committee on International Relations
    House of Representatives

    Dear Mr. Chairman:

    One of the emerging forces affecting the global economy has been the rapid
    growth of Asian economies, increased energy consumption in these
    economies, and the rising oil prices accompanying this growth. Congress
    has raised concerns about the nature of international competition for oil
    and natural gas resources and how the United States can secure the energy
    resources needed to support U.S. economic growth. In particular, Congress
    has expressed interest in how the United States has sought to advance one
    of the key principles of energy security--international cooperation
    through participation in international energy cooperation forums.

    To determine how the U.S. government participates in international energy
    cooperation forums, at your request, we reviewed: (1) what are the key
    international energy forums in which the United States pursues energy
    cooperation, (2) what are some of the key emerging energy market issues
    that are important for international energy cooperation, and (3) how the
    United States is addressing these issues through its participation in
    these forums.

    To answer these questions, we reviewed documents and interviewed officials
    responsible for international energy cooperation at the Departments of
    Energy (DOE), State, and Commerce. Our work at DOE also included the
    Energy Information Administration (EIA), a DOE statistical agency that
    provides independent data, forecasts, and analyses to promote sound policy
    making and efficient markets. We focused on the oil and natural gas
    sectors and on the following key international energy cooperation forums:
    the International Energy Agency (IEA), the Asia Pacific Economic
    Cooperation (APEC) Energy Working Group, the North American Energy Working
    Group (NAEWG), and the International Energy Forum (IEF). We neither
    evaluated these forums and their impacts on energy policy and the global
    energy market nor did we evaluate U.S. energy policy goals. Rather, we
    reviewed the forums' mission, structure, and activities. We conducted
    fieldwork at IEA and the U.S. Mission to the
    Organization of Economic Cooperation and Development (OECD) in Paris,
    France, and interviewed U.S. members of the IEA and APEC Energy Working
    Group business advisory groups, as well as private sector energy experts.
    To determine some of the key emerging energy market issues that are
    important for international energy cooperation, we reviewed documents and
    data and interviewed officials at the DOE and the Departments of State and
    Commerce, as well as reviewing relevant reports and studies and discussing
    them with energy experts. We conducted our work from January 2006 to
    November 2006 in accordance with generally accepted government auditing
    standards. (See app. I for details about our objectives, scope, and
    methodology.)

                                    Results in Brief

    The United States pursues energy cooperation through international energy
    forums that are designed to meet specific cooperative needs. These forums
    range from formal institutions to regional associations to more informal
    gatherings designed to facilitate a frank exchange of information. IEA is
    the only formal institution with binding obligations for a petroleum
    reserve system. It focuses on responding to supply disruptions through
    emergency planning for the coordinated release of members' petroleum
    reserves, such as in its response to Hurricane Katrina in 2005, as well as
    on providing oil and natural gas market information. The APEC Energy
    Working Group focuses on the rapidly growing Asia Pacific economies; it is
    a voluntary regional effort that seeks to build consensus on energy policy
    issues through sharing best practices and technology insights. NAEWG
    focuses on developing an open, efficient, and transparent North American
    energy market through greater regulatory cooperation and exchanges of
    energy data, information, and technology. IEF--formerly known as the
    "Producer-Consumer Dialogue-- facilitates dialogue between oil-producing
    and -consuming countries in biennial ministerial meetings and sponsors the
    Joint Oil Data Initiative (JODI), a recent effort to establish a world oil
    database.

    We identified three key energy market issues that are important for U.S.
    efforts in international energy cooperation in the oil and natural gas
    sectors. First, world oil demand has risen more rapidly than expected,
    particularly from major developing countries such as China and India. At
    the same time, supply has become more constrained and more susceptible to
    disruptions, due to such constraints as political or energy sector
    frictions in certain producing countries such as Iraq, Nigeria, Venezuela,
    and Iran and less spare crude oil production capacity. This has resulted
    in a tight energy market characterized by higher prices. Second, the
    market participation of national oil and gas companies--which are majority
    owned by national governments--from both energy consuming and producing
    countries has led to limitations on access to oil and natural gas
    resources. Concerns have arisen that some national oil and gas companies
    may not be able to efficiently bring energy resources to the market and
    that constrained investment climates in some producing countries dominated
    by national companies may inhibit the investment needed for continued
    production and growth. Third, tightened markets and the need for
    substantial investment in the oil and gas sectors have increased the
    importance of more reliable oil and natural gas market information. For
    example, key industry forecasts failed to anticipate the 2004 surge in
    Chinese and global oil demand due in part to unreliable data.

    The U.S. government has addressed these key emerging energy market issues
    through its participation in international energy cooperation forums;
    however, these forums, by their nature, can be constrained in the degree
    to which they can have an impact on these issues. Discussion of energy
    issues among sovereign nations for which energy has great domestic
    economic and political sensitivity generally means that forums focus on
    noncontroversial issues, like energy efficiency and technology. Forum
    efforts are also constrained by inherent limitations in restricted
    membership, consensus-based decision making, and the voluntary nature of
    participation and follow-up. However, within these constraints, the U.S.
    has tried to mitigate the imbalances associated with tight markets by
    supporting efforts such as emergency preparedness, policy and technical
    outreach to developing countries with fast increasing energy needs, energy
    technology research and training, and cooperation with producer countries.
    The United States has not directly addressed the impact of the growing
    participation of national oil companies on the energy market at the
    forums, but it has pursued related areas such as investment climates.
    Forum initiatives to improve information have included capacity building,
    data sharing, and data standardization efforts. The United States has
    supported such efforts through its participation in the forums; however,
    EIA's involvement in initiatives to improve international data has been
    indirect and ad hoc according to a senior EIA official. Despite the
    importance of reliable international energy data for market stability,
    EIA's expertise has not been consistently leveraged for international
    energy cooperation. Furthermore, due to differing reporting schedules,
    U.S. data submissions to the IEA have lacked timeliness and contributed to
    the 18month lag for which published international data is available.

    In this report, we make two recommendations to DOE to emphasize the
    priority of improving energy information efforts within the international
    forums, particularly by (1) examining how EIA expertise can contribute to
    international forum data efforts and (2) examining how U.S. data
    submissions to the IEA can be made more timely. We provided a draft of
    this report to DOE and the Departments of Commerce and State. All three
    agencies provided written comments, which are reproduced in appendixes IV,
    V, and VI, respectively. The Department of Commerce agreed with our
    recommendations. The Department of State provided information about
    organizational changes it had made recently that highlight the importance
    of global energy challenges. DOE stated that the U.S. government has been
    actively engaged in international energy forums to advance U.S. energy
    security objectives and that our report adds to the greater understanding
    of these efforts. However, DOE expressed concerns with our
    characterization that EIA expertise has not been consistently leveraged to
    improve international energy data through the multilateral forums and with
    our description of how U.S. data submissions to IEA have not been timely.
    DOE provided alternative language that we incorporated where appropriate.
    Finally, DOE stated that it was concerned that GAO asserts that providing
    more data on a timely basis will resolve energy market and security
    issues. While GAO makes no such assertion, we emphasize that improving
    energy statistics is one important way in which the international forums
    can enhance the impact of international cooperation, especially as regards
    global energy market transparency. DOE and the Departments of Commerce and
    State also provided technical comments, which we have incorporated where
    appropriate.

    Background

    The growth rate of crude oil and natural gas demand in the United States
    has outpaced the growth rate of the country's crude oil and natural gas
    production over the last 20 years. This widening gap is projected to
    accelerate in the future. As shown in figure 1, EIA forecasts that this
    trend for crude oil will continue through 2030. Natural gas demand, as
    shown in figure 2, has similarly outpaced natural gas production, and EIA
    forecasts that this trend will also continue. This widening gap between
    U.S. domestic energy production and consumption of oil and natural gas has
    focused attention on the importance of these commodities to the U.S.
    economy.

    Figure 1: U.S. Crude Oil Production and Demand, 1980-2030

    Million barrels per day 20 2006

    1816 14 12 10

    8

    6
    4
    2
    0

        1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Year

    Production

    Demand Source: GAO analysis of EIA data. Note: Production is based on U.S.
    domestic oil field production data; demand is based on U.S. domestic oil
    field production plus net crude oil imports.

    Figure 2: U.S. Natural Gas Production and Demand, 1980-2030

          Trillion cubic feet

    30 2006 25

    20

    15

    10

    5

    0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

          Year

    Production

    Demand Source: GAO analysis of EIA data.

    The United States' most recent "National Energy Policy" report, issued in
    May 2001, outlines several U.S. energy security objectives that are
    relevant for international energy cooperation.^1 The report states that
    the United States should work cooperatively with key countries and
    institutions to expand sources and types of supply, enhance the
    transparency and efficiency of markets, strengthen U.S. capacity to
    respond to disruptions, promote international trade and investment in the
    energy sector, and
    enhance emergency preparedness, among other goals.^2 Several
    recommendations outlined in the "National Energy Policy" report provide
    guidance for the United States as it engages in multilateral and bilateral
    forums and discussions designed to enhance U.S. energy security, such as
    the following:

    1For recent GAO evaluations of related energy activities, see GAO, National
    Energy Policy: Inventory of Major Federal Energy Programs and Status of
    Policy Recommendations, GAO-05-379 (Washington, D.C.: June 10, 2005); GAO,
    Energy Security: Issues Related to Potential Reductions in Venezuelan Oil
    Production, GAO-06-668 (Washington, D.C.: June 27, 2006); GAO, Natural
    Gas: Factors Affecting Prices and Potential Impacts on Consumers,
    GAO-06-420T (Washington, D.C.: Feb. 13, 2006); and GAO, Energy Markets:
    Factors Contributing to Higher Gasoline Prices, GAO-06-412T (Washington,
    D.C.: Feb. 1, 2006).

         o Work with the IEA to ensure that member states fulfill their
           stock-holding commitments and encourage major oil-consuming countries
           that are not IEA members to consider strategic stocks as an option for
           addressing potential supply disruptions;^3
         o Work with producer and consumer country allies and the IEA to craft a
           more comprehensive and timely world oil data reporting system;
         o Use membership in multilateral organizations, such as APEC, and
           bilateral relationships to implement clear, open, and transparent
           rules and procedures governing foreign investment and reduce barriers
           to trade and investment;
         o Engage in a dialogue through NAEWG to develop closer energy
           integration among Canada, Mexico, and the United States; and
         o Assist U.S. companies in their dialogue with Russia on investment and
           trade and improve the overall investment climate.

    2The "National Energy Policy" report contained over 100 recommendations
    that it stated, taken together, provide a national energy plan that
    addresses the energy challenges facing the nation. In a 2005 report,
    GAO-05-379, GAO found it is difficult to fully assess the status of
    progress made in implementing the National Energy Policy recommendations
    because the information reported by DOE has been limited, some
    recommendations are open-ended and lack measurable goals, and the National
    Energy Policy recommendations do not reflect all federal energy-related
    efforts.

    3For this recommendation, the "National Energy Policy" report specifically
    encourages the United States to work closely with Asian economies,
    especially through APEC.

      The United States Pursues Energy Cooperation through International Energy
      Forums Designed to Meet Specific Cooperative Needs

    The United States pursues energy cooperation through international energy
    forums that meet specific cooperative purposes. These forums range from
    formal institutions with binding obligations to regional associations to
    more informal gatherings designed to facilitate a frank exchange of
    information. Information related to these forums is summarized below in
    table 1.

    Table 1: Overview of Major International Energy Cooperation Forums
    Number of
    Forum       members Forum structure              Forum objectives
    IEA              26 Formal institution made up   Collective response to
                           of OECD                      oil supply disruptions
                           industrialized democracies,  Analysis and publication
                           with binding obligations for of energy market
                           petroleum reserve system,    information Energy policy
                           and about 150 professional   outreach to major
                           staff                        developing
                                                        countries, as well as
                                                        energy producing
                                                        countries
    APEC Energy      21 Regional energy forum based  Promoting development of
                           on                           Asia-Pacific energy
    Working Group       consensus decision making    market through sharing
                           and analysis                 energy information,
                           from multiple expert groups  expertise, and best
                                                        practices
    North American    3 Trilateral (United States,   Optimal integration of
                           Canada, and                  North American energy
    Energy Working      Mexico) energy forum based   market by sharing policy,
                           on consensus                 regulatory, and
    Group               decision making and analysis technical expertise
                           from multiple
                        expert groups
    International  over High-level international     Supports JODI
                        60 energy forum
    Energy Forum        fostering dialogue among     Informal discussion of
                           both energy producing and    energy security issues
                           consuming countries

                                      Source: GAO.

    IEA Focuses on Emergency Planning for Supply Disruptions, Oil Market
    Information, and Outreach to Major Developing Nations

    IEA was established in November 1974 by most of the members of OECD, the
    major industrialized democracies that were generally also the largest
    consumers of oil, and today has 26 members.^4 It was a collective response
    to energy security concerns arising from the oil embargo imposed by the
    Organization of the Petroleum Exporting Countries (OPEC) the previous year
    to reduce the vulnerability of IEA members to a major disruption in oil
    supplies. IEA's primary mission was to respond to any future oil crisis
    through a binding emergency preparedness system that established emergency
    oil reserves equivalent to 90 days of members' net imports, countering any
    future threat of an oil embargo. In addition, it collects and analyzes oil
    market data in order to increase oil market information and transparency;
    assesses member countries' domestic energy policies and programs; makes
    projections based on differing scenarios; and prepares studies and
    recommendations on specialized energy topics.

    IEA's goals have evolved over the years as the energy market has changed;
    today it focuses its emergency planning less on the threat of embargoes
    and more on supply disruptions that might arise from natural disasters,
    wars, or terrorist acts. More importantly, as the structure of the oil
    market has changed over the years, IEA's emergency response measures have
    also evolved from a government emergency allocation program to marketbased
    measures, according to a DOE official. IEA's release of oil reserves in
    response to Hurricane Katrina in September 2005 is an example of its
    current focus. In addition to emergency preparedness measures, IEA also
    emphasizes outreach to nonmember countries, reducing dependence on oil
    through alternative energy and advanced technology, and integrating
    environmental and energy policies. Recently, IEA has also recognized that
    it needs to enhance its expertise related to the growing global natural
    gas market.

    IEA is an autonomous international organization based in Paris, France,
    created within the framework of the OECD in order to implement the treaty
    establishing it.^5 IEA's main decision-making body is the Governing
    Board, composed of senior energy officials from each member country and
    meeting about four times per year.^6 Day-to-day operations are conducted
    by the IEA Secretariat, headed by an Executive Director and comprising a
    professional staff of about 150 energy experts drawn from member
    countries. IEA also receives the input of the IEA Industry Advisory Board,
    which has private sector representatives from member countries and meets
    three to four times a year.

    4The members of IEA are: Australia, Austria, Belgium, Canada, Czech
    Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland,
    Italy, Japan, Korea, Luxembourg, Netherlands, New Zealand, Norway,
    Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United
    States.

    5IEA was established pursuant to the Agreement on an International Energy
    Program. All IEA members must be OECD members. However, not all OECD
    members are IEA members. OECD nonmembers of IEA are Iceland, Mexico,
    Poland, and the Slovak Republic.

    The United States is significantly involved in IEA activities, according
    to
    U.S. and IEA officials. The Deputy Executive Director is traditionally an
    American. The DOE Assistant Secretary for Policy and International Affairs
    and the Department of State Deputy Assistant Secretary for Energy,
    Sanctions, and Commodities both serve on the Governing Board and play an
    active role. U.S. energy officials participate on almost every standing
    group and committee as either a Chair or Vice-chair. In addition, the
    United States has historically provided about 25 percent of IEA's annual
    budget, which amounted to $5.5 million in 2006, according to a Department
    of State official.

    APEC Energy Working Group Seeks to Build Broad Regional Consensus on Key
    Energy Issues

    The APEC Energy Working Group, comprised of 21 Asian Pacific economies^7
    accounting for 60 percent of world energy demand, is a voluntary regional
    effort that seeks to build consensus on energy policy issues, primarily
    through sharing best practices and technology insights. This working group
    includes both net energy consuming countries, such as the United States,
    Japan, and China, and net energy producing countries, such as Russia and
    Indonesia. It was launched in 1990 to develop a program for energy
    cooperation. It seeks to maximize the energy sector's contribution to the
    region's economic and social well-being, while
    mitigating the environmental effects of energy supply and use. Its
    objectives include strengthening the security and reliability of
    affordable energy to all members, and promoting clean and efficient
    technologies and the efficient use of energy to achieve both economic
    gains and environmental enhancement.

    6The Governing Board is supported in policy development by a structure of
    Standing Groups and Committees, also composed of member government energy
    officials, that each separately meet two to five times a year and focus on
    the oil market, emergency preparedness, long-term cooperation, nonmember
    countries, and energy research and technology.

    7These are: Australia; Brunei Darussalam; Canada; Chile; People's Republic
    of China; Hong Kong, China; Indonesia; Japan; Malaysia; Mexico; New
    Zealand; Papua New Guinea; Peru; Republic of the Philippines; Republic of
    Korea; Russian Federation; Singapore; Chinese Taipei; Thailand; United
    States of America; and Vietnam. Members of APEC are called "economies"
    rather than "nations" in order to avoid the issue of the status of Taiwan,
    which is not recognized by China as a separate nation. The compromise was
    to refer to all members as economies and to refer to Taiwan as "Chinese
    Taipei," according to a DOE official.

    APEC Energy Ministers' meetings, generally held every 2 years, provide the
    Energy Working Group with political guidance regarding its activities. The
    APEC Energy Working Group has its own Secretariat in Australia, which has
    been financially underwritten and staffed by the Australian government.
    The Energy Working Group, generally comprised of member government energy
    officials, meets twice a year. It receives an update on the activities of
    the five expert groups, which focus on clean fossil energy, efficiency and
    conservation, energy data and analysis, new and renewable energy
    technologies, and minerals and energy exploration and development. It also
    guides the work of the Asia Pacific Energy Research Centre, an
    international organization based in Tokyo that receives the bulk of its
    financial support from the Japanese government. Finally, it is advised by
    the Energy Working Group Business Network, which provides private sector
    perspective on key energy issues affecting the region.

    The APEC Energy Working Group fosters discussion of members' energy
    policies and planning priorities, sharing basic energy demand and supply
    outlook data, considering regional energy policy implications, and
    responding to wide-reaching energy-related issues. Recent efforts include
    its Energy Security Initiative, which comprises both short-term measures
    designed to respond to temporary energy supply disruptions and longer term
    policy responses designed to address the broader challenges facing the
    region's energy supply. It has also focused on development of the
    Asia-Pacific natural gas market, particularly for liquefied natural gas
    (LNG).^8

    The United States generally sends two delegates from DOE's Office of
    Policy and International Affairs and an observer from the Department of
    State to the Energy Working Group meetings. DOE staff also participate on
    the various expert groups.

    LNG is natural gas, primarily methane, which has been cooled to its liquid
    state at -260 degrees Fahrenheit. Liquefying natural gas reduces the
    volume it occupies by more than 600 times, making it a practical size for
    storage and transportation.

    NAEWG Focuses on Regional Regulatory Cooperation and Exchange of Energy
    Market Data, Information, and Technology

    NAEWG is a trilateral regional forum--including the United States, Canada,
    and Mexico--focused on developing an open, efficient, and transparent
    North American energy market. The forum pursues this focus by emphasizing
    efforts such as greater regulatory cooperation, encouraging energy data
    and information exchange, collaborating on energy science and technology,
    and examining natural gas trade and interconnections.

    NAEWG was established and initially led by the three Energy Ministers of
    Canada, Mexico, and the United States in its inaugural meeting in June
    2001.^9 Natural Resources Canada, the Mexican Secretariat of Energy, and
    the U.S. DOE jointly chair NAEWG, with day-to-day U.S. leadership now
    provided at the Assistant Secretary level. DOE's Assistant Secretary of
    Energy for Policy and International Affairs is the U.S. lead, while both
    the Department of Commerce and the Department of State support the effort
    at the Deputy Assistant Secretary level.

    The agenda of work identified at the ministerial level is carried out by
    nine expert working groups.^10 Members of these expert working groups
    share their policy, regulatory, and technical expertise and energy
    statistics from the three countries. According to DOE officials, the
    products of this work are enhanced regulatory cooperation, such as on
    project siting issues; workshops on various energy issues; and joint
    public written documents produced by the expert working groups. For
    example, in 2005, NAEWG published the "North America Natural Gas Vision,"
    a report addressing the region's natural gas regulations and policies,
    production and consumption, trade, transportation, and supply and demand
    projections. Each expert working group also consults informally with
    energy industry representatives to enable numerous subject area workshops
    and to obtain private sector input on an issue area.

    ^9The formation of NAEWG was one of 105 recommendations for action in the
    U.S. "National Energy Policy" report, released in May 2001. With support
    from the heads of state from each of the three countries regarding
    cooperation in the energy sector, Natural Resources Canada Minister
    Goodale, Mexican Secretary of Energy Martens, and U.S. Secretary of Energy
    Abraham established NAEWG in March 2001.

    10These comprise the electricity, energy efficiency, energy picture,
    hydrocarbons, natural gas trade and interconnections, nuclear
    collaboration, oil sands, regulatory, and science and technology working
    groups.

    IEF Seeks to Facilitate Dialogue and Information Exchange between Oil
    Producing and Oil Consuming Countries

    IEF--formerly known as the "Producer-Consumer Dialogue"-- is a unique
    forum established to facilitate dialogue on energy security issues between
    producing and consuming countries. IEF provides the largest recurring
    global gathering of Energy Ministers, with over 60 countries
    participating. The IEF Ministerial is held every 2 years, rotating in
    location, and is a venue for Energy Ministers to discuss energy security
    issues. IEF does not serve as a decision-making organization or a forum
    for negotiating formal agreements. However, according to Department of
    State and DOE officials, U.S. participation at the senior staff level has
    increased since 2000 in recognition of IEF's value in allowing for
    informal, frank, and wide exchange of information.^11

    IEF activities in addition to the Ministerial dialogue include the JODI
    and the International Energy Business Forum. JODI is a recent initiative
    to establish a world oil database, originally combining the efforts of six
    international organizations including APEC and IEA.^12 The International
    Energy Business Forum serves as a venue for Ministers to meet with
    industry representatives prior to the IEF Ministerial and had over 30
    companies participating in 2006. The Ministerial dialogue, JODI, and the
    International Energy Business Forum are now facilitated by the IEF
    Secretariat, which was established in December 2003 and is headquartered
    in Riyadh, Saudi Arabia.

    In addition to participation with IEA, APEC Energy Working Group, NAEWG,
    and IEF, the United States also participated in the July 2006 Group of
    Eight (G-8) Summit hosted by Russia, which served as an ad hoc forum
    addressing the need for international energy cooperation. The United
    States also pursues international cooperation through bilateral energy
    cooperation efforts. We reviewed U.S. bilateral energy cooperation efforts
    with Canada, China, India, Mexico, and Russia. Information related to
    these forums can be found in appendix II.

    11The "Producer-Consumer Dialogue" was originally designed to be a dialogue
    and informational bridge between OPEC and IEA countries. U.S.
    representatives originally had concerns about this dialogue and possible
    price collusion resulting from the discussions that have been allayed in
    the past several years.

    12The other international organizations include the Statistical Office of
    the European Communities (EUROSTAT), Organization Latinoamericana de
    Energia (OLADE), OPEC, and the United Nations Statistics Division (UNSD).
    These organizations began an assessment of the quality of world oil
    statistics in April 2001 under an initiative called the "Joint Oil Data
    Exercise." This exercise was transformed into JODI after the 8th IEF in
    2002.

      Emerging Energy Market Issues Include Tight Markets, Growing Role of National
      Oil Companies, and Increased Importance of Reliable Market Information

    Three key energy market issues that are important for U.S. efforts in
    international energy cooperation in the oil and natural gas sectors are: a
    tight energy market, growing market participation of national oil
    companies, and increased importance of reliable energy market information.

    Rising Demand and Supply Constraints Have Resulted in a Tight Energy
    Market

    World energy demand has risen in recent years, particularly from major
    developing countries, at the same time supply has become more constrained
    and more susceptible to disruptions--resulting in a tight energy market
    characterized by higher prices. During most of the 1990s, real crude oil
    prices (in 2003 dollars) fluctuated around $20 a barrel. While crude oil
    prices started edging up with the economic recovery and production cuts at
    the end of the 1990s, upward price pressures became pronounced during
    2003-2004. These market conditions contributed to world crude oil prices
    increasing by more than two-and-a-half times from about $30 a barrel in
    early December 2003 to a peak of about $77 a barrel around mid-July
    2006.^13 While prices dropped by around $20 a barrel in the 3 to 4 months
    following this peak, ^14 several energy experts believe that the
    fundamentals of the tight market still exist and are a cause for
    continuing concern.

    Rapid Increase in Oil Demand by Developing Countries Has Contributed to a
    Tight Energy Market

    In recent years, rapid growth in energy demand by major developing
    countries, such as China and India, and continued steady growth of demand
    by many industrialized nations has contributed to tighter oil markets. The
    main consumers of oil continue to be the advanced
    economies. The United States, OECD Europe,^15 and Japan together account
    for about half of annual global oil consumption. However, consumption in
    the major developing countries has generally been increasing at a faster
    pace. China, in particular, has gained prominence because its demand has
    grown so fast. One expert noted that China's demand in 2004 rose by an
    extraordinary 16 percent compared with 2003 and served as a "demand
    shock," or unexpected surge in demand.^16 From 2000 to 2004,^17 total
    world demand for oil grew by about 8 percent, increasing from nearly 77
    million barrels per day to about 82 million barrels per day. China's
    demand for oil rose by 33 percent over this period, followed by India's
    growth in demand of 15 percent, while U.S. demand increased by about 5
    percent, and OECD Europe by about 2 percent.

    13Prices are based on daily spot prices of West Texas Intermediate crude oil
    at Cushing, Oklahoma, as reported by EIA. The spot price of crude oil
    never dipped below $30 per barrel again after December 1, 2003, when it
    was $29.98 per barrel. It peaked on July 14, 2006, at $77.03.

    14The spot price for West Texas Intermediate crude oil dropped to a low of
    $56.27 per barrel on November 14, 2006, and as of December 1, 2006, was
    back up to $63.44.

    The data used to measure both oil demand and supply are subject to
    limitations described later in this report, including lack of timeliness
    and transparency, definitional inconsistencies, and national
    sensitivities. The estimates provided represent the broad trends from the
    most current market information used in forecasting and determining cost.
    Table 2 shows the top world consumers of oil--countries that consumed more
    than 2 million barrels per day--with their level of demand and the
    percentage change from 2000 to 2004, as well as their share of the world
    oil market in 2004. The United States far exceeds the rest of the world in
    its volume of consumption, accounting for a quarter of world demand, with
    about 21 million barrels per day in 2004. Most of U.S. oil demand arises
    from usage in the transportation sector. China's demand surpassed Japan's
    in 2003, and it became the second largest consumer of oil, with about 6
    million barrels per day, or about 8 percent of world demand.^18 India's
    demand is also growing quickly. It consumed about 2 million barrels per
    day, the sixth highest level of demand.

    15OECD Europe consists of Austria, Belgium, Czech Republic, Denmark,
    Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy,
    Luxembourg, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain,
    Sweden, Switzerland, Turkey, and the United Kingdom.

    16Daniel Yergin, Chairman, Cambridge Energy Research Associates, before the
    Government Reform Subcommittee on Energy and Resources and the
    Subcommittee on National Security, Emerging Threats, and International
    Relations, U.S. House of Representatives, May 16, 2006.

    172004 is the latest year for which data is available for all countries. The
    term "demand" is used interchangeably with "consumption."

    18In 2005, oil demand data for the United States and China were 20.7 and 6.9
    million barrels per day, respectively. Total world demand was 83.8 million
    barrels per day, and the U.S. and Chinese share of total world demand
    remained at 25 and 8 percent, respectively.

    Table 2: Top  World Oil  Consumers, with  Level of  Demand and  Percentage
    Change, 2000-2004, and Share of Total World Market in 2004

                                Million barrels per day

    Percentage of Percentage total world

    Ranking Country 2000 2004 change demand

    United 19.7 20.7 5% 25% States
                                  2 China 4.8 6.4 33 8
                                  3 Japan 5.5 5.3 -3 6
                                  4 Russia 2.6 2.8 7 3
                                 5 Germany 2.8 2.7 -4 3
                                  6 India 2.1 2.5 15 3
                                 7 Canada 2.0 2.3 13 3
    8 South 2.1 2.2 1 3 Korea
                                 9 Brazil 2.2 2.1 -1 3
                                10 France 2.0 2.0 0.5 2
                                 11 Mexico 2.0 2.0 -3 2

                             Total world 76.6 82.5 8% 100%

    Source: GAO analysis of EIA data.

    Note: All countries that consumed more than 2 million barrels per day in
    2004 are included. This is the most recent year of data available for all
    countries.

    As demand has risen, so have oil import needs. For instance, while the
    United States produced almost 9 million barrels per day of oil in 2004,
    making it the third largest world producer,^19 its production met only 42
    percent of its demand, with net oil imports of about 12 million barrels
    per day meeting the remaining 58 percent of demand. China's import
    dependence has also grown, and it imported about 45 percent of its oil in
    2004. Figure 3 shows the top world net oil importers in 2004, countries
    importing more than 1 million barrels per day net. Of these 9 countries, 6
    were totally or almost totally import dependent for their oil consumption.
    For instance, Japan and South Korea were totally dependent on imports,
    predominantly from the Persian Gulf, while many European countries also
    imported from Algeria, Libya, and Nigeria. The largest net oil exporter to
    the United States was Canada, followed by Mexico, Saudi Arabia, and
    Venezuela.

    19Oil production is defined here as crude oil (including lease condensate),
    natural gas plant liquids, other liquids, and refinery processing gain.
    Saudi Arabia was the largest producer, with about 10 million barrels per
    day, while Russia was second, with about 9 million barrels per day, in
    2004, according to EIA data.

    Figure 3: Top World Oil Net Importers, 2004 Net oil imports (million
    barrels per day)

    12
    10
    8
    6
    4
    2
    0
    United Japan China Germany South France Italy Spain India
    States Korea

          Net oil imports as share of total country consumption (percentage)

    150
    101%102%
    95%93%98%
    100
    92%
    61%
    58%
    45%
    50
    0

    Source: GAO analysis of EIA data.

    Notes: This includes all countries that imported more than 1 million
    barrels per day net in 2004 and is the most recent year of data available
    for all countries.

    Countries importing more than 100 percent of consumption are likely adding
    the extra oil to their petroleum stocks or this may be due to anomalies in
    the data.

    Oil Supply Constraints Have Increased, Putting Further Pressure on an
    Already Tight Market

    While the world supply of oil and refined products has risen to meet
    increased demand, supply constraints have also increased, eroding certain
    market cushions and contributing further to market tightness. Increased
    political or energy sector frictions in countries such as Iran, Iraq,
    Nigeria, and Venezuela and decreased spare crude oil production capacity
    have exerted pressure on crude oil markets. Given the tight market
    situation, marked by less spare production capacity and other cushions,
    any oil supply disruption can cause the price of oil to rise dramatically.

    One factor contributing to constrained oil supplies is that the political,
    or energy sector, friction in key oil producing nations led to supply
    disruptions and diminished production capacity, in some cases.
    Participation by international oil companies in the oil sector has been
    affected by political tensions in Iraq, Venezuela, and Nigeria, and
    economic sanctions on Iran and Libya. For example, in April 2006,
    Venezuela seized two oil fields operated by two foreign oil companies
    because the companies did not comply with new rules imposed by the
    Venezuelan government. In Nigeria, recent disruptions due to militant
    actions have shut-in about 650 thousand barrels per day of production.

    A second contributing factor is that world production of oil is 84 to 85
    million barrels of oil per day, and the rate of production increase has
    not kept pace with the rate of increased demand. Furthermore, there is
    very little spare production capacity given existing infrastructure. Spare
    oil production capacity-- the ability to produce extra barrels of
    production in the short-term--is a key market cushion for responding to
    market disruptions. Since the mid-1980s, growth in world oil production
    capacity has lagged relative to growth in global oil demand, with the
    result that spare capacity has declined from a high in recent times of 5.6
    million barrels per day in 2002 to between 1 and 1.3 million barrels per
    day today. Most of this spare capacity is held within Saudi Arabia. While
    in previous oil supply disruptions, the U.S. government has been able to
    negotiate with senior officials in Saudi Arabia and other oil-producing
    countries to increase their supply of crude oil, many oil industry
    officials, experts, and
    U.S. government officials said that today such efforts would be less
    effective given the limited levels of spare oil production capacity in
    world markets.

    Downstream investment in pipelines and tankers has also lagged behind the
    growth in global oil demand in recent years, contributing to potential
    bottlenecks. Additionally, private inventories of oil have been in a
    longterm declining trend, in part because of a trend toward just-in-time
    inventory, according to energy experts.

    Oil production is capital-intensive and heavily dependent on continuous
    investment to maintain existing wells, drill new wells for crude oil
    production, and develop and maintain the infrastructure supporting the
    production network. Extensive investment in the oil sector will be
    required to meet future oil demand and maintain spare capacity, according
    to energy experts.

    Looking ahead, there are additional uncertainties related to future
    supplies of oil. Expected new supplies of crude oil may be in places that
    are difficult to access and could involve high extraction and processing
    costs, as with offshore reserves and unconventional crude oils. There is
    also an ongoing peak oil debate--disagreement among oil market experts as
    to when the world will reach its level of peak production of conventional
    oil and then begin to decline.

    For a discussion of the growing role of natural gas in world energy
    markets, see appendix III.

    Growing Market Participation of National Oil Companies Has Led to Concerns

    In an energy market characterized by relatively high oil prices and
    increasing energy demand, the growing participation and market influence
    of national oil and gas companies--which are majority owned by national
    governments--from both energy consuming and producing countries has
    contributed to limited access to oil and natural gas resources in some
    producing countries. National oil companies from producing countries
    already control about 90 percent of the world's crude oil reserves,^20
    according to DOE. In contrast, the ability of the international oil and
    gas companies--the large, privately owned and publicly traded oil and gas
    industry entities--to maintain current production levels by replacing
    their energy assets with new reserves is affected by increasingly limited
    access to energy resources around the world. Additionally, access to
    capital and technical expertise by the national oil and gas companies of
    consuming countries has enabled them to compete with the international oil
    companies in the global energy markets. The impact of this industry shift
    is unclear, but some concerns have arisen over (1) the ability of some
    national oil and gas companies from consuming nations to efficiently bring
    energy resources to the market and (2) the constrained investment climates
    in some producing countries dominated by national oil and gas companies
    that may inhibit the investment necessary to ensure continued production
    and growth.

    20Refers to "conventional" crude oil reserves. According to the EIA,
    conventional crude oil reserves are reserves produced by a well drilled
    into a geologic formation in which the reservoir and fluid characteristics
    permit the oil to readily flow.

    National Oil Companies' Influence Is Growing Relative to International Oil
    Companies

    The influence of the national oil and gas companies is perceived to be
    growing, as the ability of international oil and gas companies to replace
    their energy resource holdings becomes increasingly limited. According to
    DOE Secretary Samuel W. Bodman, in a speech to the National Petroleum
    Council in June 2006, 90 percent of the world's untapped conventional oil
    reserves are controlled by governments and their national oil and gas
    companies, many of which are in politically unstable regions of the world.
    Figure 4 indicates that 7 of the top 10 companies are national or
    statesponsored oil and gas companies, ranked on the basis of oil^21
    production. The three international oil companies that are among the top
    10 are Exxon Mobil, BP, and Royal Dutch Shell. Ranked on the basis of oil
    reserve holdings, 9 of the top 10 companies are national or
    state-sponsored oil and gas companies. These top 10 oil and gas companies
    accounted for an estimated 42 percent of world daily oil production and an
    estimated 64 percent of world oil reserves holdings in 2004, based on EIA
    data for world estimates. Figure 5 shows a similarly strong position for
    the national or state-sponsored oil and gas companies, with respect to
    natural gas production and reserves holdings. These top 10 oil and gas
    companies accounted for an estimated 44 percent of world daily natural gas
    production in 2004 and an estimated 62 percent of world natural gas
    reserves holdings, based on EIA data for world estimates. Some agency
    officials and energy experts believe that, should some countries with
    national oil and gas companies continue to limit competition and
    investment opportunities in their energy sectors, the ability of
    international oil and gas companies to replace their energy resource
    holdings will become increasingly limited to locations marked by high
    geological, political, and financial risks.

    21"Oil" includes crude oil, as well as natural gas liquids and condensates.
    Natural gas liquids are hydrocarbons in natural gas that are separated
    from the gas as liquids through the process of absorption, condensation,
    adsorption, or other methods in gas processing or cycling plants.
    Condensates are a natural gas liquid recovered from gas wells from lease
    separators or field facilities.

    Figure 4: Top 10 Companies Based on Oil Production and Reserves Holdings,
    2004

          Percentage

    2%
    100
    Lukoil (Russia) 2%
    Exxon Mobil (U.S.) 8%
    Royal Dutch Shell (U.K./Netherlands) 7%
    90
    Saudi Aramco (Saudi Arabia) 32%
    BP (U.K.) 7%
    National Iranian Oil Co. (Iran) 16%
    80
    Iraq National Oil Co. (Iraq) 14%Kuwait Petroleum Co. (Kuwait) 11%
    70
    Petroleos de Venezuela(Venezuela) 10%
    60
    Abu Dhabi National Oil Co. (U.A.E.) 6%Libya NOC (Libya) 4%Saudi Aramco
    (Saudi Arabia) 28%
    50
    Nigerian National Petroleum
    National Iranian Oil Co. (Iran) 12%
    Co. (Nigeria) 3%
    Petroleos Mexicanos (Mexico) 11%
    40
    Petroleos de Mexico(Mexico) 2%
    Petroleos de Venezuela (Venezuela) 8%
    Kuwait Petroleum Co. (Kuwait) 7%
    Iraq National Oil Co. (Iraq) 6%
    30
    Petro China (China) 6%
    20
    10
    0

    Top 10 oil and gas companies Top 10 oil and gas companies based
    based on oil production, 2004 on oil reserves holdings, 2004
    International oil and gas company National oil and gas company

    Source: GAO analysis of data from Petroleum Intelligence Weekly, Dec. 12,
    2005.

    Notes: "Oil" includes crude oil, natural gas liquids, and condensates.
    Natural gas liquids are hydrocarbons in natural gas that are separated
    from the gas as liquids through the process of absorption, condensation,
    adsorption, or other methods in gas processing or cycling plants.
    Condensates are a natural gas liquid recovered from gas wells from lease
    separators or field facilities.

    The Petroleum Intelligence Weekly data relies on company reports where
    possible, as well as other information sources provided by companies.
    However, estimates are generated for those companies that do not release
    regular or complete reports. Estimates were created for most of the
    state-owned oil companies in the figure above.

    Figure 5: Top 10 Companies Based on Gas Production and Reserves  Holdings,
    2004

    Percentage 100

    Exxon Mobil (U.S.) 8%
    Gazprom (Russia) 30%BP (U.K.) 7%
    Royal Dutch Shell (U.K./Netherlands) 7%
    90
    National Iranian Oil Co. (Iran) 26%
    QP (Qatar) 17%
    Saudi Aramco (Saudi Arabia) 6%
    Total (France) 4%
    80
    Petroleos de Venezuela(Venezuela) 4%
    70
    Sonatrach (Algeria) 4%
    60
    Gazprom (Russia) 46%
    Rosneft (Russia) 4%
    National Iranian Oil Co. (Iran) 7%
    Iraq National Oil Co. (Iraq) 3%
    50
    Sonatrach (Algeria) 7%
    Nigerian National Petroleum
    Saudi Aramco (Saudi Arabia) 5%
    Co. (Nigeria) 3%
    40
    Pertamina (Indonesia) 5%
    Abu Dhabi National Oil Co. (U.A.E.) 3%
    Petroleos (Malaysia) 4%
                                           30
                                          20
                                          10
                                          0

    Top 10 oil and gas companies Top 10 oil and gas companies based
    based on gas production, 2004 on gas reserves holdings, 2004
    International oil and gas company National oil and gas company

    Source: GAO analysis of data from Petroleum Intelligence Weekly, Dec. 12,
    2005.

    Note: Natural gas is net or marketable output.

    Competition among consuming countries to procure oil and gas assets has
    also been affected by the growing participation of national oil and gas
    companies. Some energy experts stated that increased access to capital,
    combined with increased access to technical expertise available for hire
    from third-party service companies, has allowed these consuming countries'
    national oil and gas companies to compete with the international oil
    companies in the global marketplace for energy resources. Additionally,
    with political leverage and potential financial support provided from
    their governments, some national oil and gas companies may be willing to
    operate at a lower discount rate and a potentially lower profit margin.
    For example, there has been an increasing trend by some national oil and
    gas companies from energy consuming countries such as Brazil, China,
    India, and Malaysia to become active, competitive bidders for acquiring
    exploration rights to energy resources in other producing countries. Some
    experts say these national oil and gas companies may benefit from
    increased financial support and political leverage in negotiations with
    the host supplier countries.

    National Oil and Gas Companies May Lack Resources to Develop Projects and
    May Inhibit Competition

    According to some agency officials and energy experts, there are two main
    concerns about participation of national oil and gas companies in the
    energy market. One concern is that some national oil and gas companies
    from consuming countries may not have the combination of capital,
    technical expertise, and managerial expertise necessary to efficiently and
    effectively develop certain oil and gas projects, preventing some of the
    production from getting to the global energy market in a timely manner.
    Some energy experts stated that a Chinese national oil and gas company,
    for example, may have the capital to compete for the rights to explore for
    energy resources but may not have the technology and managerial expertise
    to develop some projects. Additionally, agency officials and energy
    experts expressed concern over the impact of national oil and gas
    companies procuring energy assets based on national policy goals rather
    than on commercial market business strategy. Whereas, international oil
    and gas companies typically seek to maximize returns, some national oil
    and gas companies' operations may be driven primarily by their
    government's energy policy interests and revenue requirements. This may
    result in (1) a national oil and gas company potentially preventing some
    or all of the production from the resource base under their control from
    getting to the global energy market in a timely way or (2) a national
    company entering into bilateral exploration based on foreign policy
    purposes. Some energy experts added that, although there may also be a net
    gain in the resulting energy supply on the market due to increased
    activity by national oil and gas companies from consuming countries, the
    ability of some of these companies to bring those energy assets to market
    is varied and remains a concern.

    A second concern is that constrained investment climates in some producing
    countries' energy markets will inhibit the investment necessary to ensure
    continued production and growth is maintained by the country's national
    oil and gas company. For some energy producing countries, the national oil
    and gas companies serve as a source of general government revenues and
    funding for social programs, and as a result can be marked
    under-investment in the company that is required to maintain the country's
    energy output. In addition, some energy producing countries dominated by
    national oil and gas companies have failed to open their investment
    climates or reinvest sufficiently. Experts cited national oil companies in
    Russia, Mexico, Venezuela, and Indonesia as examples of oil sectors with
    constrained investment climates and insufficient government reinvestment
    in the energy sector.

    Market Stability and Investment Require Reliable Energy Information]

    Energy officials and experts state that more reliable
    energy market information is an increasingly
    important element for market stability. The reliability
    of oil and natural gas market information is questionable due to
    systemic factors such as reporting delays, definitional
    differences, and lack of transparency. In a tight energy market, the
    negative impacts of
    uncertainty in market information on planning and current and future
    needed investment are amplified.

    Unreliable Market Information Contributes to Energy Market Uncertainties

    Energy experts and officials question the
    reliability of oil and natural gas market
    information in large part due to (1) concerns about historical
    demand and supply data based on a lack of timeliness in
    reporting,
    definitional differences, and national or industry sensitivities and (2)
    concerns about future demand and supply estimates based on unreliable
    historical data and insufficient transparency about projection assumptions
    and methodologies.^22 For example, concerns about oil demand information
    include the following:

         o Historical demand data: Uncertainty results from successive revisions
           of data, a lack of timeliness in reporting, and questionable
           reliability of data, particularly from rapidly growing non-OECD
           countries such as China and India. Final demand data are generally
           available about 16-20 months after the reference year. By the time
           final data are reported, initial estimates may have been revised
           repeatedly. EIA officials also question the basic reliability of
           demand data for non-OECD countries like China and India. For example,
           Chinese demand estimates are derived from "apparent demand"--as a sum
           of estimated production and estimated net imports-- or on inference
           from Chinese gross domestic product (GDP) growth estimates. ^23 As an
           example of the uncertainty that results from such methods, the EIA
           indicated that Chinese oil demand had grown at roughly 500,000 barrels
           per day in 2005, while a widely quoted Morgan-Stanley report indicated
           that Chinese demand had declined.
         o Projections: Uncertainty results from projected demand estimates that
           rely upon questionable historical data and that may not fully
           incorporate data revisions. For example, both the EIA and IEA use historical demand
    and estimated economic growth as a basis for their demand projections.
    However, both the EIA and IEA forecasts failed to anticipate the surge in
    Chinese and global demand growth in 2004 due to the poor quality of
    Chinese data. According to economic experts, uncertainty in future demand
    is further compounded by insufficient transparency in EIA and IEA
    methodologies for projecting impacts of a high-price future.

    ^22The IEA's World Energy Outlook and the EIA's International Energy
    Outlook are published annually and, according to energy experts, are
    widely considered industry standards for world oil market projections.
    Both agencies prepare a "reference" scenario that forms the basis for
    their expected projections, as well as various "high-price" scenarios. In
    addition to these publications, both agencies are working to expand their
    analysis of energy market volatility in the future through other studies
    and analytical tools.

    23Both the reliability of estimates on Chinese net imports and Chinese
    economic growth have also been questioned.

    Concerns about oil supply information include:

         o Historical supply data: Uncertainty in production and stock
           (inventories) data results from the proprietary nature of the data,
           differences in definitions and conversion rates, and political
           sensitivities. According to the EIA, for example, OPEC countries often
           do not accurately report their current production levels. An EIA
           official reported that estimates of OPEC's June 2006 crude oil
           production varied by over 700,000 barrels per day, from a low of 29.3
           million barrels per day by the Petroleum Intelligence Weekly, to 30
           million barrels per day by the IEA. Reliability of OPEC production
           data is further complicated by OPEC quotas that are based on estimated
           reserves, which are suspected to have been inflated in order to
           generate higher quotas. For Russia, swings of up to 100,000 barrels
           per day have occurred in its production data since Russian data do not
           break out gas condensate from oil production, and conversion rates for
           a combined stream are uncertain.^24 Production data for some countries
           may be inferred from combining oil exports, oil demand, and changes in
           oil stocks. However, in addition to problems with demand data, oil
           stock data is incomplete and does not generally include stocks held in
           non-OECD countries (such as in China or India where stock data is
           considered a state secret) or in independent storage within OECD
           countries. In a previous GAO study, we found that missing stock data
           in IEA statistics, referred to as "missing barrels," were present in
           24 of 26 years between 1973 and 1998.^25 Both IEA and EIA data for
           1999 through 2005 still reflected these gaps.
         o Projections: Uncertainty results from projected supply estimates that
           rely upon questionable historical data and an unknown level of oil
           reserves.

    24The EIA defines crude oil as a mixture of liquid hydrocarbons in natural
    underground reservoirs that remain liquid after passing through surface
    separating facilities. Gas condensate is a mixture of heavier hydrocarbons
    recovered as liquids from natural gas.

    25See GAO, International Energy Agency: How the Agency Prepares Its World
    Oil Market Statistics, GAO/RCED-99-142 (Washington, D.C.: May 7, 1999).

    Reliable Energy Market Information Is Needed for Investment and Market
    Stability

    For example, both the EIA and IEA use historical data as a basis of
    projecting future world demand and future non-OPEC supply. Then, both
    agencies assume that OPEC production will "fill the gap." IEA and EIA
    projections call for around a 50 percent increase in current OPEC
    production, but there is growing debate over OPEC's ability to meet this
    requirement. ^26 Supply projections are also based on widely debated
    estimates of oil reserves due to differences within and between industry
    and governments about the definitions and measurement of "known,"
    "proven," "probable," or "undiscovered" reserves,^27 the impact of
    technology on those reserves, and the rate of decline in certain oil
    fields. According to energy experts, uncertainty in projected supply is
    further compounded by insufficient transparency in EIA and IEA assumptions
    about the impacts of high prices on future production.

    Many of the concerns about oil demand and supply data also apply to
    natural gas data. Both the EIA and IEA have indicated the need to improve
    the timeliness and accuracy of natural gas demand, production, and stock
    information. Data reliability issues occur due to the increasing number of
    participants in natural gas markets, unspecified exports due to a
    multitude of small players, large increases in inter-regional trade and
    the loss of trade origin, longer supply chains, and industry sensitivities
    in response to increasing market competition.

    Reliable Energy Market Information Is Needed for Investment and Market
    Stability

    Reliable energy market information is important for reducing price
    volatility and facilitating planning and needed investment. For example,
    the EIA reported that unanticipated world oil demand growth in 2004
    contributed to depletion in oil stocks and resulted in the recent high oil
    prices. Uncertainty about demand growth also negatively impacts needed
    investment for future expansion of world oil and natural gas supplies
    (including an estimated $3 trillion in each sector from 2005 to 2030 by
    the IEA), particularly given the long lead times and payback periods
    required for such investments. Oil and natural gas producer nations have
    stated the need to better understand future demand in order to undertake
    costly investment--according to the OPEC Secretariat, uncertainty about
    future oil demand, future non-OPEC production, and needed OPEC investment
    is
    the largest challenge facing the organization.^28 Similarly, Russia's
    Gazprom has indicated the need for future demand certainty, indicating
    possible supply curtailments if its European consumers seek to diversify
    their supplies away from Russia. Oil and natural gas consuming nations
    have also indicated the need for more certainty in future supply. This is
    particularly important given needed infrastructure investment in non-OECD
    countries to use natural gas--EIA projects that 73 percent of future
    natural gas demand will occur in countries outside the OECD--and needed
    worldwide investment to expand the use of LNG.

    26This debate is in part related to uncertainty over Saudi Arabia's spare
    capacity level.

    27These terms reflect the degree of certainty to which estimated reserves
    exist and the likelihood that such reserves can be profitably extracted.
    Other uncertainties have arisen from recent announcements by major oil
    companies that they have lowered their reserve estimates.

      Important Constraints Affect U.S. Ability to Address Key Energy Market
      Issues in Forums

    The U.S. government has pursued emerging energy market issues through its
    participation in international energy cooperation forums; however, these
    forums, by their nature, can be constrained in the degree to which they
    can have an impact on these issues. The greatest constraint on the forums'
    ability to impact energy issues comes from the sensitivity of sovereign
    nations to discussing their domestic energy policies. Forum efforts are
    also constrained by limitations in membership, consensusbased decision
    making, and voluntary participation. However, within these constraints,
    the United States has tried to mitigate energy market imbalances through
    efforts such as promoting emergency preparedness and outreach to
    developing countries. While the United States has not directly addressed
    the impact of the growing participation of national oil companies on the
    energy market at the forums, it has pursued related areas such as
    improving the investment climate. Finally, the United States has supported
    international efforts to improve energy information through various data
    sharing agreements, standardization, and capacity building-- though EIA
    involvement has for the most part been indirect and ad hoc, and U.S. data
    submissions to the IEA have lacked timeliness.

    Sensitivity of National Energy Policies Is the Overriding Constraint

    International energy cooperation forums, by their nature, can be
    constrained in the degree to which they can have an impact on energy
    market issues. The greatest constraint comes from the sensitivity that
    sovereign nations bring to discussing their domestic energy policies.
    Supplier countries may resist international efforts to increase
    opportunities for foreign investment in their energy sectors, and
    consuming countries, like the United States, may resist international
    efforts to influence their energy demand levels. For this reason,
    discussion of energy issues at international energy cooperation forums is
    almost always addressed through an agenda decided by consensus. This
    generally means that forums focus on noncontroversial issues, like energy
    efficiency and technology, according to U.S. officials. Forum efforts are
    also constrained by inherent limitations in restricted membership,
    consensusbased decision making, and the voluntary nature of participation
    and follow-up.

    28In their long-term strategy, OPEC examined various rates of projected  oil
    demand to 2020 and estimated that their needed investment could vary  from
    $230 billion to $470 billion.

    For the United States, however, the consensus-based agenda does have the
    advantage of "de-Americanizing" some issues, according to U.S. officials.
    In some cases, an issue or action may be more likely to be addressed on
    its own merits than if the United States is seen to be the primary force
    behind it. Peer pressure can also be an important factor when a group of
    countries is endorsing an issue or approach.

    The United States Tried to Mitigate Imbalances from Recent Tight Energy
    Markets through Energy Forum Efforts

    The United States has tried to mitigate the imbalances resulting from the
    recent tightening of the energy market through its participation in
    international energy cooperation forums. U.S. efforts have primarily
    focused on support for emergency preparedness, including development of
    strategic petroleum reserves and contingency plans. The challenges to
    these efforts lie in factors such as key developing countries not being
    members of the forum, such as China and India not having IEA membership,
    or in the voluntary nature of participation and follow-up.

    Enhancing Emergency Preparedness

    The United States has sought to address tight energy markets and
    associated market imbalances primarily by supporting emergency
    preparedness in both IEA and the APEC Energy Working Group. IEA is the
    premier forum at which the United States addresses emergency preparedness.
    It has an emergency response plan--called "Coordinated Emergency Response
    Measures"--ready for use, supplemented by periodic emergency scenario
    planning exercises that allow member countries to practice how they would
    implement the plan in case of a real emergency. This IEA emergency
    response plan was used in response to Hurricane Katrina in September 2005,
    although such a situation had never been anticipated in IEA scenario
    planning. A senior IEA official told us that IEA's response to Hurricane
    Katrina showed the market that IEA would act to mitigate supply shortfalls
    by releasing oil stocks. He said that IEA does not act to affect price but
    showed that it would act to affect supply, and this had helped restore
    confidence in the market.

    The United States has strongly supported the APEC Energy Working Group's
    Energy Security Initiative, which is also designed to respond to the
    volatility resulting from the recent tightening of the market. Short-term
    measures include improving the transparency of the global oil market
    through improvement of APEC energy data and participation in JODI,
    monitoring efforts to strengthen sea-lane security, implementing the
    Real-Time Emergency Information Sharing System, and encouraging members to
    have emergency mechanisms and contingency plans in place. DOE's policy and
    international affairs office and strategic reserve office both also worked
    with APEC Energy Working Group partners to identify best practices for
    strategic oil stocks. DOE then hosted a follow-up workshop in July 2005.

    Conducting Outreach to Major Developing Countries

    Another way in which the United States has tried to address market
    imbalances has been through outreach to major developing nations in both
    IEA and the APEC Energy Working Group. For example, IEA conducts a major
    outreach effort to developing countries and has established a separate
    office, the Office of Non-Member Countries, for this purpose. It has
    concluded "memoranda of policy understanding" to strengthen cooperation
    with China and India and has conducted numerous workshops, seminars, and
    training exercises.^29 IEA held its first oil security workshop with China
    in 2001, at which it provided training in emergency response measures and
    strategic reserve management. China's 5-Year Plan for 2000-2005 had raised
    the possibility of building a national strategic petroleum reserve, and it
    subsequently is building petroleum reserve tanks and has begun filling
    them, according to DOE. IEA also invited China to attend its emergency
    response training and disruption simulation exercise in October 2004 and
    hosted a follow-up workshop with China on oil security in October 2006.
    IEA held a similar oil security workshop with India in 2004. It has also
    conducted numerous workshops and training efforts with Brazil, members of
    the Association of Southeast Asian Nations, and others.

    In contrast to IEA, U.S. outreach efforts to major developing countries at
    the APEC Energy Working Group are more direct since many of the major
    developing nations, such as China and Singapore, are members, providing
    a continuing opportunity to conduct outreach. The focus in the APEC Energy
    Working Group is on developing and sharing best practices and technology
    insights.

    29IEA's workshops and seminars with China addressed energy efficiency,
    energy modeling and statistics, coal and investment, and electric power
    reform. IEA also jointly held a conference on Northeast Asia energy
    security and cooperation with the Korean Energy Economics Institute in
    Seoul, Korea. IEA also held workshops with India on efficiency standards,
    coal and electricity, and energy indicators.

    Promoting Best Practices, Training, and Energy Technology Research

    The United States has also promoted best practices, training, and research
    across a broad range of energy issues. IEA and the APEC Energy Working
    Group both sponsor numerous conferences, workshops, and seminars designed
    to share information and technology and to encourage members to adopt
    practices and policies that are considered most beneficial. An example of
    this approach is the APEC Energy Working Group's focus on best practices
    in developing an Asian LNG market. The United States hosted an APEC Energy
    Working Group workshop in San Francisco in March 2004 to identify best
    practices for LNG trade, which were later endorsed by members' Energy
    Ministers. A follow-up workshop was held in Taipei in March 2005 to
    encourage acceptance of these best practices. That workshop resulted in
    the launch of an LNG Public Education and Communication Information
    Sharing Initiative to improve public understanding of the benefits of LNG,
    as well as to address safety concerns.

    These forums also conduct economic analyses and research projects. IEA
    annually publishes its flagship World Energy Outlook, which provides
    global long-term energy market analysis. It also conducts extensive energy
    policy analyses to promote conservation and the efficient use of energy,
    as well as increased use of alternatives to oil (energy diversification).
    The Asia Pacific Energy Research Centre also publishes studies of global,
    regional, and domestic energy demand and supply trends and related policy
    issues. In the area of research, IEA's Energy Technology Collaboration
    Program currently sponsors more than 40 international collaborative energy
    research, development, and demonstration projects, known as "Implementing
    Agreements." Their purpose is to help coordinate national technology
    efforts so there are no redundancies of effort across participating
    countries, which can include nonmember countries.^30

    Greater Cooperation with Producer Countries

    A final element of U.S. efforts to address market imbalances has been
    support for greater cooperation with producer countries. IEA's Office of
    Non-Member Countries has conducted outreach activities with producer
    countries, as well as developing countries. It studies oil developments in
    major emerging non-OPEC regions such as Russia, the Caspian, and West
    Africa. For example, IEA has a memorandum of understanding with Russia and
    has conducted workshops and training with Russia. It completed an energy
    survey of Russia in 2002 that incorporated a review of its energy
    situation, policies, electricity regulatory reviews, and resulting
    recommendations. In addition, the United States participates in IEF, which
    is a producer-consumer dialogue that promotes the exchange of information
    among all parties with an interest in the energy market.

    30These projects are self-financed through voluntary contributions by the
    countries that decide to sponsor the research and, as such, are financed
    outside the IEA budget process.

    Challenges to Efforts to Mitigate Market Imbalances

    The challenges to these efforts to mitigate market imbalances lie in the
    inherent constraints of each forum. Since IEA was established within the
    framework of OECD, a prerequisite for IEA membership is OECD membership,
    which means that the applicant country must be a democracy and have a
    market-based economy. This is one factor that complicates the issue of
    extending IEA membership to fast-growing, energy consuming countries like
    China. Another complicating factor is the requirement that IEA members
    hold at least 90 days of oil reserves, which would be difficult for most
    developing countries to achieve.^31 For IEA, deepening relations with
    nonmember countries is a delicate balancing act. A senior IEA official
    said that IEA wants to improve its relationship with developing countries
    like China and India--and, in fact, is considering how to offer them
    observer status--but it also does not want to give away the equivalent of
    membership without these countries having to meet the basic requirements
    of membership.

    Another inherent limitation to what can be achieved in these forums is
    that participation and follow-up are voluntary. Apart from IEA's treaty
    obligations related to emergency preparedness (i.e., holding 90 days of
    oil reserves), IEA and APEC Energy Working Group activities are voluntary,
    and decisions are made by consensus. These forums can take steps to
    strongly encourage actions by members but cannot compel them. For
    instance, IEA country reviews, conducted every 4 years for each member,
    examine their energy policies and make recommendations. Two years later,
    brief standard reviews update the main energy developments and report on
    progress in implementing the recommendations. But, it is up to each
    country whether, and to what degree, it will take the recommended steps.

    31The commitment is to hold at least 90 days of net imports of the preceding
    calendar year. Apart from the technical difficulties of building and
    managing a strategic petroleum reserve, it would be very expensive at
    current oil prices, and it could potentially further increase oil prices
    by putting greater demand pressure on the market.

    U.S. Has Addressed Impact of Growing Participation of National Oil
    Companies by Pursuing Related Areas Such as Investment Climate

    The international energy forums do not directly address the impact of the
    growing participation of national oil companies on the energy market. The
    forums, however, do focus on the development of open, competitive energy
    markets within countries. Opening the investment climates in energy
    producing countries can provide increased access and competition for the
    international energy companies. However, forum efforts are constrained by
    inherent limitations in consensus-based decision making, membership, and
    voluntary participation.

    Encouraging Open Investment Climates Is a Priority in the Energy Forums

    Both DOE officials and the Executive Director of the IEA stated that
    contributing to opening up energy investment climates is a high priority
    at the IEA and is an issue that has significant overlap with the emerging
    influence of national oil companies. The IEA Offices of Long-Term
    Cooperation and Non-Member Countries conduct in-depth reviews of the
    energy policies of both IEA member countries and nonmember countries to
    focus on their investment climate status and related regulatory reforms.
    The IEA Shared Goals^32 of participating member countries are in part
    based on the establishment of free and open markets as a fundamental
    starting point. For reviews of nonmember countries' energy policies, the
    IEA provides observations on the status of a country's investment climate
    and the regulatory reforms needed to enhance competitive access to its
    domestic energy markets. For example, the IEA conducted a 2002 Russia
    Energy Survey that identified the need for regulatory and legislative
    reform within Russia and focused on increasing competition and on opening
    its energy markets. Similarly, the IEA has also performed reviews of some
    of China's energy sectors that have focused on market liberalization and
    the transparency of the country's oil market and related transactions,
    among other issues.

    Other international energy forums also contribute to encouraging the
    development of open investment climates and competitive access
    opportunities within member countries. For example, NAEWG focuses on
    improving the integration of the energy economies of Canada, Mexico, and
    the United States through data and information sharing across
    government-owned and privatized energy sectors. In addition, one DOE
    official stated that NAEWG efforts to demonstrate the benefits of open
    markets and expose the tight nature of gas supplies in North America,
    limiting the amount and affecting the price of pipeline supplied gas that
    would be available to Mexico, supported the development of the LNG
    market as a significant private investment opportunity for companies in
    what is primarily a government-owned energy sector in Mexico. The APEC
    Energy Working Group also encourages APEC member economies to create
    conditions to facilitate energy infrastructure investment through its
    Energy Security Initiative. For example, the APEC Energy Working Group
    developed a list of best practices for member countries to follow in
    financing energy infrastructure projects so as to develop a competitive
    energy investment climate.

    32Adopted by IEA Ministers in 1993.

    Efforts Are Constrained by the Goals and Processes of the Forums

    The goals and processes of the international forums do not lend themselves
    to directly addressing the impact of the growing participation of national
    oil companies on the energy market. U.S. agency officials and energy
    experts stated that the consensus approach and limitations of membership
    in the international energy forums covered in this review create
    challenges to addressing this emerging energy market issue. Related
    efforts for more open investment climates, such as through the IEA country
    reviews, or APEC Energy Working Group's development of investment best
    practices, have also been hindered by the voluntary nature of members'
    responses to forum recommendations.

    The contentious nature of the topic of growing participation of national
    oil companies on the energy market conflicts with the general approach of
    the international energy forums in achieving consensus on the energy
    issues covered. DOE and Department of State officials stated that an
    international energy forum is not an appropriate venue for addressing
    potentially contentious issues because a forum's studies and action items
    are agreed to by consensus. Some energy experts interviewed also
    questioned what, if any, role the international energy forums can play on
    this issue. These experts emphasized that the international energy forums
    are essentially organizations that allow for gathering and exchanging of
    important energy data and information, but they do not have either the
    negotiating leverage or the focus needed to address this particular issue.
    One expert added that the increasing influence of national oil companies
    in the international oil markets may create a competition issue among the
    private sector players in the market, but it is not a problem for energy
    security or an issue that the international energy forums should or can
    address directly.

    Limited membership in the international energy forums also inhibits
    addressing the impact of the growing participation of national oil
    companies on the energy market directly. Some of the major players
    influencing the topic, such as China and India, are not active
    participants in the discussion. For example, national oil companies from
    China and
    India have been increasingly active in oil and gas exploration by pursuing
    a policy of procuring access to energy resources in various countries
    around the world. However, both have not been active members in the
    international energy forums. Similarly, Russia is one of the most
    influential energy producing countries in the world, with its domestic
    energy market dominated by national oil companies; but, it has not been an
    active participant in any of the major international energy forums.

    Related efforts for more open investment climates are hindered by the
    voluntary nature of members' responses to forum recommendations.
    International energy forums like the IEA make recommendations for member
    countries and observations for nonmember countries to follow in order to
    move to market pricing and open up their investment climates. However, the
    forums lack the authority or mandate to require that these recommendations
    actually be implemented. For example, despite consistent recommendations
    to open up its energy markets from both multilateral and bilateral forums,
    Russia has actually reversed the liberalization of its energy sector and
    investment climate over the last 2 years. According to DOE and IEA
    officials, its energy sector is now less efficient, and the investment
    climate has worsened. Similarly, despite the IEA's efforts to engage
    Mexico in participating in a review of its energy policies, Mexico has
    shown no interest in the review or implementation of the recommendations
    that typically result.

    U.S. Has Supported International Efforts to Improve Energy Data within
    Authority and Capacity Boundaries

    Improved energy market transparency is an important theme for each of the
    major international energy forums. Through its participation in the
    forums, the United States has supported improving energy information with
    measures such as data sharing, data standardization, and capacity building
    (i.e., improving a country's ability to collect and analyze energy data).
    However, forum efforts often remain challenged in improving data quality
    and timeliness, for example, due to authority limitations and continued
    capacity needs in developing countries. Additionally, U.S. support for
    forum efforts has not benefited from consistent use of EIA expertise, and
    the United States has not provided timely data submissions to the IEA.

    Improving Information Is a Key Forum Goal

    International energy cooperation forums aim to facilitate the sharing and
    collection of information across multiple governments. JODI is one key
    data sharing effort and includes monthly oil data for over 90 countries,
    representing around 95 percent of global demand and supply.^33 IEA
    officials report that, through JODI, the international community is able
    to view timelier world oil data and assess the current quality of that
    data. Forum officials also reported that JODI was receiving high-level
    political support and contributing to increased transparency in some
    cases--China has begun collecting and releasing some data on changes in
    levels of oil stocks to IEA, and the IEA "Oil Market Report" is now
    incorporating timelier OPEC production data. Additionally, through JODI,
    IEA and APEC are working to standardize data collection by agreeing to use
    the same oil market questionnaire. Both organizations are also considering
    developing a similar natural gas data initiative in the future.

    In addition to data sharing and standardization, the forums have several
    efforts to improve energy information through capacity building. Such
    efforts include IEA memorandums of understanding with China and India to
    improve data sharing, the IEA Energy Statistics Manual, and the 2005 and
    2006 G-8's political endorsements of the Extractive Industries
    Transparency Initiative through which data is collected on developing
    country revenues from extractive industries.

    U.S. and Forum Efforts to Improve Information Face Important Challenges

    While the United States has supported forum efforts to improve
    international energy information, EIA expertise has not been leveraged in
    a consistent manner beyond the data exchange activities, as discussed
    above. For example, the United States supports forum initiatives such as
    JODI or NAEWG statistical sharing, and EIA is a member of the IEA Energy
    Statistics Workgroup that develops reporting standards for IEA data
    submissions. The United States also supports the Extractive Industries
    Transparency Initiative through U.S. Agency for International Development
    funding and through participation in an International Advisory Group.
    However, when asked about consistent leveraging of EIA expertise for forum
    efforts to improve the quality and reliability of international data, a
    senior EIA official described the administration's involvement as indirect
    and ad hoc. For example, while EIA has provided briefings and analysis to
    DOE's policy office for its cooperation efforts, EIA has not been directly
    and consistently involved with international forum initiatives to improve
    data collection efforts in other countries or in training workshops. The
    EIA official also described EIA's participation as increasing and
    decreasing with staff availability. International cooperation
    has been a small part of EIA's overall mission; however, given the
    importance of reliable international energy data for market stability and
    the emphasis on comprehensive and timely energy data reporting in the
    National Energy Policy, we believe that EIA's expertise can contribute to
    enhanced international energy data improvement efforts.

    33The JODI  world  database was  opened  to the  public  in 2005  and  is  a
    relatively new data effort.

    Another challenge for international cooperative efforts to improve energy
    market data is the fact that the forums must depend on independent member
    countries to be responsive. According to IEA officials, the IEA is
    criticized for providing annual statistical publications that are 18
    months old. These officials believe that the IEA could publish annual data
    with only a 9-month lag if member countries submitted their data within
    requested time frames. However, according to the IEA officials we met
    with, several countries do not meet the requested time frames--including
    the United States. For 2004 annual data, for example, the United States
    had not provided its complete data submission to the IEA until March 17,
    2006, although the data was requested by September 30, 2005.^34 According
    to a senior EIA official, the United States is unable to meet IEA's
    requested time frames, however, due to a national schedule for data
    collection that does not correspond with the IEA's data collection
    schedule and the fact that the United States may have to wait for data
    from industry entities such as the American Petroleum Institute. The
    United States anticipates submitting 2005 annual data to the IEA by
    February 2007 (around 4 months after the requested date but earlier than
    the previous year's submission).

    Authority limitations also challenge international cooperative efforts to
    collect detailed and consistent information on oil reserves and production
    levels. Energy experts have emphasized the need for international
    field-by-field production data and a better understanding of future oil
    resources, as well as the true cost of developing them. Currently,
    however, reserve estimates are unaudited figures, and there are no common
    informational
    disclosure requirements for reserves under international accounting
    standards.^35

    34The United States submitted around two-thirds of its data by the end of
    January 2006 and the remaining one-third of data by March 17, 2006. The
    IEA prepares report cards for each of its members that record data
    timeliness, completeness, and overall quality. On its most recent report
    card, the United States was rated "poor" for timeliness--the lowest rating
    achievable-- due to submissions provided more than 2 months after
    requested. The United States received high ratings in other areas.

    Capacity limitations, particularly in emerging market economies, are
    another challenge for international cooperative efforts to improve energy
    market information. While establishment of JODI has generally been
    considered a success by forum participants, periodic quality reviews of
    the database reveal a mixed record of improvement, for example. When asked
    about JODI data reliability, U.S. and IEA officials report that data from
    developing countries may lack reliability due to capacity limitations and
    that, despite organizational efforts to support JODI, the forums must
    ultimately rely on the political will of countries to improve and share
    their data.^36

    Exacerbating capacity limitations, the IEA has also emphasized challenges
    resulting from rapidly expanding data demands. According to IEA officials,
    interest has grown in information on natural gas, renewable energies, and
    energy efficiency. Additional statistical resources may be needed to
    acquire such information from new markets--many of them smaller and more
    dispersed, such as with renewable energies like biofuels--and to provide
    data at a more detailed level, such as within the household on energy use
    by vehicle or appliance. IEA reports that statistical resources to fill
    these additional needs are insufficient.

                                      Conclusions

    Both oil importing and oil exporting countries seek stable, predictable
    energy markets to support continued economic growth. Oil importing
    countries, such as the United States and China, are concerned about
    security of oil supply. Over the past few years, the unanticipated growth
    in demand for oil has outpaced the growth in oil supplies. Oil exporting
    countries have not been able to increase supply levels accordingly, and
    spare capacity has declined to the point where political, economic, and
    weather-related events can have disruptive effects on the market.
    Increasing future supplies of crude oil and refined oil will require high
    levels of investment and technical expertise because new discoveries are
    expected to take place in remote, offshore, and often politically risky
    locations. In some of these locations, the producing country lacks the
    capital and expertise to develop the resources and also lacks a
    predictable investment climate, open to foreign investment--thus raising
    questions about when potential supplies might come to the market. Energy
    market experts expect the tight supply situation to continue in the medium
    and long term.

    35According to energy experts, the Securities and Exchange Commission system
    for reserve disclosure is based on outdated definitions of reserves and
    technology such that there is a growing divergence between what is
    reported under the Securities and Exchange Commission and how companies,
    using more modern technologies and tools, assess their own reserve
    position.

    36To support continued data improvement, the organizations are preparing a
    JODI manual and JODI training sessions.

    At the same time, oil exporting countries are concerned about the
    security, or predictability, of oil demand. In the 1990s, demand for oil
    was affected by a global economic slowdown, including the Asian financial
    crisis of 1997-1998, and oil exporters experienced generally low oil
    prices. With exploration costs so high now, some exporting countries are
    concerned about committing to long-term investment projects without clear
    indications of demand predictability.

    International cooperation among importers and exporters can be founded on
    the recognition that each group has a shared interest in market stability.
    If the market does not provide this stability and questions about demand
    and supply growth persist, "cooperation" may move more in the direction of
    bilateral agreements covering oil and gas exploration and pipeline routes.
    Such agreements may be perceived as excluding other countries.

    International forums can serve an important overall purpose in providing
    the opportunity for oil importers and oil exporters to discuss common
    interests and concerns. The forums have not directly addressed matters
    that involve sovereign, sensitive decisions--such as Mexico's foreign
    investment prohibitions or the competitive practices of some national oil
    companies--but they do serve to keep channels of communication open and
    improve understanding of various members' concerns. By working on matters
    of interest to forum members--such as technical advice on emergency
    preparedness and management of strategic petroleum reserves and on ways to
    achieve cleaner, more efficient energy production--they can build on
    shared interests and contribute to the longer-term remediation of the
    demand-supply imbalance that has caused volatile prices.

    International forums can serve another critical role by improving energy
    demand and supply statistics to facilitate investment planning. In
    examining concerns about current energy market issues, a common thread is
    that more reliable energy market information is increasingly important for
    market stability, as well as to facilitate investment planning. As
    recognized by the National Energy Policy report, comprehensive and timely
    world energy data are needed. While the United States has provided
    important leadership in international emergency preparedness and the
    establishment of energy information systems, with the increased importance
    of reliable energy market information in a tight market, a greater effort
    may be needed to improve energy statistics.

      Recommendations for Executive Action

    To enhance the impact of international cooperation for improving energy
    statistics needed for market stability and investment, we recommend that
    the Secretary of Energy emphasize the priority of
    improving energy information efforts within the international forums,
    particularly by taking the following two actions:

         o examining how EIA expertise can contribute to international forum data
           efforts, and
         o examining how U.S. data submissions to the IEA can be made more
           timely.

                          Agency Comments and Our Evaluation

    We provided a draft of this report to DOE and the Departments of Commerce
    and State. All three agencies provided written comments, which are
    reproduced in appendixes IV, V, and VI, respectively. The Department of
    Commerce agreed with our recommendations. The Department of State provided
    information in its letter about steps it has recently taken, through
    organizational changes, in order to highlight the importance of global
    energy challenges.

    DOE stated that the U.S. government has been actively engaged in
    international energy forums to advance U.S. energy security objectives and
    that our report makes many valuable points regarding the nature and the
    potentials of various international forums in which it participates. DOE
    also stated that our report adds to the greater understanding of the U.S.
    commitment to international energy cooperation.

    DOE disagreed with our characterization that EIA expertise has not been
    leveraged in a consistent manner to improve international energy data
    through the multilateral forums. DOE emphasized that EIA has been an
    active member in each of the four international forums that are the focus
    of this report. However, DOE also acknowledged that funding issues have
    constrained EIA efforts to assist other countries to improve their energy
    data and that this is an area where additional funding would be useful. We
    have modified our report language to emphasize that EIA has been more
    active in data exchange activities rather than efforts to assist other
    countries in data collection and modeling, such as through training
    workshops.

    DOE expressed concern with our description of how U.S. data submissions to
    IEA have not been timely, and it provided additional details about several
    timeliness issues. We have modified our report language to incorporate
    these clarifications. Additionally, while we recognize the challenge for
    improving U.S. data submissions due to an EIA survey schedule that does
    not correspond with IEA's scheduled due dates, we maintain our
    recommendation that DOE examine ways to improve the timeliness of U.S.
    data submissions. One consideration could include the suggestion provided
    in DOE's comments to this report that the IEA use EIA miniquestionnaires
    and monthly submissions to generate preliminary
    U.S. data.

    Finally, DOE stated that it was concerned that GAO asserts that more data
    and more timely data will resolve energy market and security issues. GAO
    makes no such assertion. Our findings highlight the increased importance
    of reliable energy market information in a tight market and, therefore, we
    recommend that DOE give greater priority to improving energy information
    efforts within the international forums. We specifically recommend that
    DOE address two relevant areas in which we saw opportunities for
    improvement, by examining how EIA expertise can be better leveraged and by
    examining how U.S. data submissions to IEA can be made more timely.
    Improving energy statistics is one important way in which the
    international forums can enhance the impact of international cooperation,
    especially as regards global energy market transparency.

    DOE and the Departments of Commerce and State also provided technical
    comments, which we have incorporated where appropriate.

    We are sending copies of this report to interested Congressional
    Committees and to the Departments of Commerce, Energy, and State. We also
    will make copies available to others upon request. In addition, this
    report will be available at no charge on the GAO Web site at
    http://www.gao.gov.

    If you or your staff have any questions about this report, please contact
    me at (202) 512-4128 or yagerl@gao.gov. Contact points for our Offices of
    Congressional Relations and Public Affairs may be found on the last page
    of this report. GAO staff who made major contributions to this report are
    listed in appendix VII.

    Sincerely yours,

    Loren Yager
    Director, International Affairs and Trade

    Appendix I: Objectives, Scope, and Methodology

    To determine how the U.S. government participates in international energy
    cooperation forums, we reviewed: (1) the key international energy forums
    in which the U.S. pursues energy cooperation, (2) the key emerging energy
    market issues that are important for international energy cooperation, and

    (3) how the United States is addressing these issues through its
    participation in these forums.

    Our review focused mainly on the following key international energy
    cooperation forums: the International Energy Agency (IEA), the Asia
    Pacific Economic Cooperation (APEC) Energy Working Group, the North
    American Energy Working Group (NAEWG), and the International Energy Forum
    (IEF). We neither evaluated these forums and their impacts on energy
    policy and the global energy market nor did we evaluate U.S. energy policy
    goals, which are based on private sector approaches. Rather, we reviewed
    the forums' mission, structure, and activities. In addition, our review
    focused on the oil and natural gas sectors of the energy market. These
    sectors provide the bulk of current energy traded in the market. For this
    reason, the nuclear, coal, renewable, and alternative energy sectors were
    outside the scope of our review.

    To determine how the United States pursues energy cooperation in key
    international energy forums, we reviewed documents and interviewed
    officials responsible for international energy cooperation at the
    Departments of Energy (DOE), State, and Commerce. We conducted fieldwork
    at the IEA and the U.S. Mission to the Organization of Economic
    Cooperation and Development (OECD) in Paris, France, where we reviewed
    documents and interviewed officials. We also exchanged correspondence with
    the Secretariat of the APEC Energy Working Group and conducted telephone
    interviews with U.S. members of the IEA and APEC Energy Working Group
    business advisory groups. In addition, we interviewed several private
    sector energy experts and industry representatives. While we had planned
    to conduct fieldwork in Mexico City, Mexico, and Ottawa, Canada, with
    Mexican and Canadian government officials responsible for NAEWG, we did
    not conduct this fieldwork because the Department of State declined to
    facilitate our access to these officials.

    To identify the key emerging issues in the international oil and natural
    gas markets in the past 5 years that are important for international
    energy cooperation, we reviewed documents and data and interviewed
    officials at DOE and the Departments of State and Commerce. We also
    reviewed relevant reports and studies, including past GAO reports, and
    discussed them with energy experts. We developed a list of three key
    emerging
    issues and verified them with agency, forum, and energy industry
    officials. We did not seek to independently verify the nature and extent
    of these energy market changes but rather relied on analysis by energy
    experts, officials, and key market studies, as well as prior GAO work. Our
    report discusses various reliability concerns with international oil and
    gas data. While data improvement is required, we believe key international
    data, such as that from the DOE's Energy Information Agency is
    sufficiently reliable to indicate broad trends in world demand and supply.

    To determine how the United States is addressing these emerging energy
    market issues through its participation in these forums, we reviewed
    documents and interviewed officials at DOE and the Departments of State
    and Commerce, as well as at IEA, the APEC Energy Working Group, and their
    business advisory groups, and private sector energy experts.

    We conducted our work from January 2006 to November 2006 in accordance
    with generally accepted government auditing standards.

                         Appendix II: July 2006 G-8 Summit and
                          Bilateral Energy Cooperation Forums

    In addition to the international energy cooperation forums discussed
    previously, we also reviewed the July 2006 Group of Eight (G-8) Summit
    held in St. Petersburg, Russia, which functioned as an ad hoc forum
    focused on energy security, and U.S. participation in several selected
    bilateral energy cooperation forums, which comprise an important part of

    U.S. energy security and cooperation efforts. We focused on bilateral
    energy cooperation with five key nations: Canada, China, India, Mexico,
    and Russia.

    July 2006 G-8 Summit, Hosted by Russia, Was Focused on Energy Security

    The G-8 is an unofficial forum of the heads of the leading industrialized
    democracies--Britain, Canada, France, Germany, Italy, Japan, Russia, and
    the United States, where the European Commission is also represented and
    fully participates. One of the priority themes of the July 2006 G-8
    Summit, hosted by Russia, was to formulate political commitments of the
    member states toward enhancing global energy security.

    The G-8 is not an international organization based on an international
    agreement and does not have formal admission criteria, a charter, or a
    permanent secretariat. G-8 summit meetings are held regularly in the
    partner states, and the host country acts as the Chair of G-8 for a
    calendar year. Russia has chaired the G-8 during 2006. The Chair organizes
    the summit and ministerial meetings and the expert and working meetings,
    manages the agenda, and coordinates the routine work of the group. At the
    summit meetings, discussions of the heads of state and government are held
    behind closed doors with decisions adopted by consensus.

    In preparation for the July 2006 G-8 Summit, the G-8 Energy Ministers met
    in March 2006 to discuss issues such as global energy security, energy
    efficiency, and energy saving. This meeting also included Energy Ministers
    from Brazil, India, China, Mexico, and South Africa, as well as
    representatives of the World Bank, the Organization of Petroleum Exporting
    Countries, the International Atomic Energy Agency, IEA, and the
    International Energy Forum. The July 2006 G-8 Summit resulted in the St.
    Petersburg Plan of Action, which is a high-level commitment on behalf of
    the G-8 members to enhance global energy security through efforts across
    several related issue areas, such as increasing the transparency and
    stability of global energy markets, improving the investment climate in
    the energy sector, and ensuring physical security of critical energy
    infrastructure.

    Bilateral Energy Cooperation Forums Allow Focused Attention on
    Issues of Interest

    The United States participates in many bilateral energy
    cooperation forums; we reviewed five selected
    bilateral forums--those with Canada, China, India,
    Mexico, and Russia. According to a DOE official, bilateral
    energy cooperation forums tend to address focused issues that
    may be of specific interest to the two parties. DOE and the Departments of
    Commerce and State play a role in the bilateral energy cooperation forums,
    with DOE personnel often co-chairing many of the working groups involved
    in the efforts. In some bilateral energy cooperation forums private
    industry is included in the discussion of certain issues, whereas other
    bilateral energy cooperation forums mainly focus on high-level dialogue
    between government representatives on energy policies and initiatives. The
    following are examples of some of the main bilateral energy cooperation
    forums:

         o The DOE official responsible for managing U.S. participation in the
           U.S.-China Energy Policy Dialogue stated it was established in 2004
           for highlevel dialogue between the two countries on energy issues such
           as energy policy, energy efficiency measures and related technologies,
           renewable energy, and energy sector reforms. Other areas of focus have
           included shared concern over supply security and energy transport
           issues. The U.S.-China Oil and Gas Industry Forum, established in
           1998, is a public-private bilateral relationship involving government
           and industry representatives from both countries. The forum is driven
           by consensus-based dialogue on commercial policy and on common goals
           such as development of secure, reliable, and economic sources of oil
           and natural gas while facilitating investment in the energy
           industry.^1
         o The DOE official responsible for managing U.S. participation in the
           U.S.-India Energy Dialogue stated it was established in 2005 with the
           primary goal of promoting energy security, increasing trade and
           investment in the energy sector, and deploying clean energy
           technologies. This forum consists of a steering committee and five
           working groups focused on oil and gas, power and energy efficiency,
           coal, new technology and renewable energy, and a civil nuclear
           initiative. Negotiations on a memorandum of understanding on energy
           information exchange began in 1996 and it was signed in February 2006.
         o According to DOE, the U.S.-Canada Energy Consultative Mechanism was
           established in 1979 as a means for discussing key energy issues of
           interest
    		 or concern to the United States and Canada. The two federal governments
    meet annually to share policy positions, identify areas of potential
    dispute, and clarify understanding on energy issues without requiring
    commitments regarding future actions. Subject areas usually covered
    include world oil market developments; domestic policy developments; and
    bilateral oil, natural gas, electricity, and nuclear issues.

    1The U.S.-China Energy Policy  Dialogue is led by  DOE. The U.S.-China  Oil
    and Gas Industry Forum is led by DOE in conjunction with the Department of
    Commerce.

         o According to DOE, the U.S.-Mexico Binational Commission^2 Energy
           Working Group was established in 1996 as one of 16 working groups
           under the commission and includes issues of bilateral interest such as
           energy policy and legislative developments in each country,
           cross-border natural gas and electricity issues, science and
           technology cooperation, and world oil market developments. The Energy
           Working Group meets as requested by either country, but, in recent
           years, bilateral energy issues have been taken up under the auspices
           of the North American Energy Working Group.
         o The DOE official responsible for managing U.S. participation in the
           U.S.-Russian Energy Dialogue stated it was established in 2002 and
           brought under its umbrella the U.S.-Russian Energy Working Group that
           had been established in 2001. The goal of this forum is to promote
           energy efficiency, alternative energy, data exchange, energy
           technology initiatives, and energy trade between the two countries
           while reducing barriers to investment in the energy sector. The
           bilateral energy forum originally met two times each year but, in
           2005, reduced this to one meeting each year.

    2The U.S.-Mexico Binational Commission was established in 1981 by
    then-Presidents Reagan and Lopez-Portillo to serve as a forum for regular
    meetings at the cabinet level on a wide range of issues critical to
    U.S.-Mexico relations.

                          Appendix III: Role of Natural Gas Is
                           Increasing in Tight Energy Market

    While the tightening of the world energy market in recent years has mostly
    been the story of the world petroleum market, there have also been
    important developments in the natural gas market. Many countries have
    increasingly relied on natural gas. For instance, while the European
    Union's dominant fuel in 2003 was oil, accounting for 40 percent of energy
    demand, natural gas has been the fastest growing fuel over the past decade
    and accounted for 24 percent of energy demand in 2003, according to the
    Energy Information Administration (EIA). Historically, natural gas has not
    been a major fuel in China, but its share in the country's energy market
    is rapidly increasing, almost doubling from 1997 to 2004, according to
    EIA. While natural gas only accounted for about 3 percent of total energy
    consumption in China in 2004, this share is expected to increase.

    The natural gas market has long been dominated by pipelines that deliver
    the natural gas from producers to consumers. For instance, 85 percent of
    U.S. natural gas imports were provided through natural gas pipelines from
    Canada in 2005. Much of Europe is served by pipelines from Russia, which
    provides around two-thirds of its imports. However, a gas supply pricing
    conflict between Russia and Ukraine in late December 2005 resulted in
    Russia's Gazprom shutting off gas supplies to Ukraine on January 1, 2006,
    resulting in an energy crisis for all of Europe. Although Russia had
    threatened a cutoff to demand higher natural gas prices in recent years,
    this was the first time that a supply disruption had affected flows to
    Europe. While the immediate crisis was soon resolved, the incident deeply
    undercut Europe's sense of energy security.

    The United States was the largest consumer of natural gas in 2004, with
    about 23 percent of world demand. Russia had the second largest demand.
    Germany, in third place, had about a quarter of Russia's level of demand.
    Figure 6 shows the top world natural gas consumers in 2004.

    Figure  6:  Top  World  Dry  Natural  Gas  Consumers,  2004  Natural   gas
    consumption (trillion cubic feet)

    24 United  Russia Germany  United Canada  Ukraine Iran  Japan Italy  Saudi
    States Kingdom Arabia

    23% 16% 4% 3% 3% 3%3%3% 3% 2%

      Natural gas consumption as share of total world (percentage)

    Source: GAO analysis of EIA data.

    Notes: Dry natural gas is also known as consumer-grade natural gas.

    Figure 6 includes all countries that consumed more than 2 trillion cubic
    feet in 2004. Total world demand was 99.7 trillion cubic feet.

    However, as figure 7 shows, Germany's net imports accounted for 80 percent
    of its natural gas demand in 2004, while this share was only 15 percent
    for the United States. Of the seven top natural gas importers, six
    depended on imports for more than 75 percent of their demand--including
    Ukraine, which met about 78 percent of its natural gas demand through
    imports.

    Figure 7: Top World Dry Natural Gas Net Importers, 2004

    Dry natural gas net imports (trillion cubic feet)
    5
    4

    United Germany Japan Italy Ukraine France South
    States Korea

    Net dry natural  gas imports as  share of that  country's dry natural  gas
    demand (percentage) 150

    Source: GAO analysis of EIA data.

    Notes: Dry natural gas is also known as consumer-grade natural gas.

    Figure 7 includes all countries whose net imports were more than 1
    trillion cubic feet in 2004.

    South Korea's net imports were more than 100 percent of its natural gas
    demand because it was increasing its natural gas inventories.

    In terms of natural gas production, Russia was the largest producer, with
    about 23 percent of total world production, as shown in figure 8. The
    United States accounted for 19 percent of total production. Canada, in a
    distant third place, produced about 7 percent of total production.

    Appendix III: Role of Natural Gas Is Increasing in Tight Energy Market

    Figure 8: Top World Dry Natural Gas Producers, 2004

        Natural gas production (trillion cubic feet)

    24 22 20 1816 14 12 10

    8

    6
    4
    2
    0

    Russia
                                     United Canada
                               ^United Netherlands Iran y
                                          eria
                         SIndonesia ^audiArabia[Mala]^ysia stan
                                          stan
    tates
                                          dom
                                         Norwa
                                           g
                                         Uzbeki
                                       rkmeniAlg
    S
                                          Kin
                                           u
                                           T

    23% 19% 7% 3%3% 3%3% 3% 3% 2% 2% 2% 2%

        Natural gas production as share of total world (percentage)

    Source: GAO analysis of EIA data.

    Notes: Dry natural gas is also known as consumer-grade natural gas.

    Figure 8 includes all countries that produced more than 2 trillion cubic
    feet in 2004. Total production was 98.6 trillion cubic feet in 2004.

    Until recently, as long as most natural gas was delivered by pipelines
    that required geographic proximity, there was not the possibility of
    developing a global market in which gas could be shipped to customers not
    connected with a pipeline. This has changed recently with the growing
    development of a liquefied natural gas (LNG) market, which is made
    possible because LNG can be shipped via LNG tankers that can go anywhere
    in the world where there is an LNG regasification terminal. LNG technology
    is not new--it had declined by the 1980s in the United States, for
    example, in part because it could not compete with lower priced domestic
    natural gas provided through pipelines. However, interest in LNG imports
    has been renewed due to higher U.S. natural gas prices in recent years,
    along with increased competition, and advances in LNG technology that have
    lowered its costs, according to EIA. LNG is expected to be particularly
    valuable for
    so-called "stranded" natural gas reserves, which are located in areas too
    remote from major demand centers to affordably be developed using
    pipelines.

    In 2005, Japan was by far the largest importer of LNG, with about 42
    percent of total world LNG imports.^1 Its major suppliers included
    Indonesia, Malaysia, Australia, Qatar, Brunei, and the United Arab
    Emirates. South Korea, in second place, accounted for about 16 percent of
    total world LNG imports, from some of the same suppliers and Oman, while
    Spain, ranked third, imported about 11 percent of the total, mainly from
    Algeria, Nigeria, Qatar, and Egypt. The United States ranked fourth, with
    about 9 percent of the total, mostly imported from Trinidad and Tobago.
    While China is not yet an important consumer in the LNG market, it is
    taking steps to significantly increase its LNG profile. With its natural
    gas use increasing rapidly, and uncertainties surrounding the potential of
    piped Russian natural gas, China is increasingly considering LNG. Its
    first LNG import terminal received its first shipment in May 2006, and
    over a dozen new terminal projects are either under way or being
    considered, according to EIA.

    1The EIA data on LNG imports do not provide a number for total LNG imports
    but rather provide it as apparent world exports of LNG, which the data
    show totaled 6,828 billion cubic feet in 2005. Japan imported 2,858
    billion cubic feet, South Korea imported 1,075 billion cubic feet, Spain
    imported 769 billion cubic feet, and the United States imported 631
    billion cubic feet.

    Appendix IV: Comments from the Department of Energy

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    See comment 1.

    See comment 2.

                                     See comment 3.

                                     See comment 2.

                                     See comment 2.

                             See comment 3. See comment 4.

                                     See comment 2.

                             See comment 3. See comment 4.

                                     See comment 1.

                                     See comment 1.

    The following are GAO's comments on DOE's letter dated December 12, 2006.

      GAO Comments

    DOE's cover letter and comments 2, 4 to 6, 40, 41, 47, and 64 generally
    addressed our key findings and recommendations. We considered the
    technical comments provided in comments 1, 3, 7 to 39, 42 to 46, and 48 to
    63 and incorporated them where appropriate.

    1. GAO does not assert that more data and more timely data will resolve
    energy market and security issues. Rather, our findings highlight the
    increased importance of reliable energy market information for mitigating
    market instability and facilitating investment and, therefore, we
    recommend that DOE give greater priority to improving energy information
    efforts within the international forums. We agree that achieving improved
    international energy statistics is not something the United States can do
    alone. However, we specifically recommend that DOE address two relevant
    areas in which we saw opportunities for
    U.S. improvement, by examining how EIA expertise can be better leveraged
    and by examining how U.S. data submissions to IEA can be made more timely.
    Improving energy statistics is one important way in which the
    international forums can enhance the impact of international cooperation.

        2. We have clarified and modified language in the report to reflect EIA's
           support for international data exchange, particularly through efforts
           such as the Joint Oil Data Initiative (JODI) and the APEC Expert Group
           on Energy Data and Analysis. However, EIA expertise has not been
           consistently leveraged for efforts to improve the quality of
           international data through, for example, assisting other countries in
           data collection and modeling or training workshops. Consistent with
           DOE's comment emphasizing the role of funding constraints in EIA's
           ability to assist with such efforts, we acknowledged that EIA's
           participation has been dependent on staff availability. Further, while
           we acknowledge in our report that international cooperation is a small
           part of EIA's overall mission, we maintain that DOE should examine how
           EIA expertise can contribute to international forum data efforts.

        3. GAO's recommendation states that DOE should examine how U.S. data
           submissions to the IEA can be made more timely. In our report, we
           acknowledge that the current EIA survey schedule does not correspond
           with IEA's current scheduled due dates. Nonetheless, we maintain that
           DOE should examine whether there are options for addressing the
           timeliness of U.S. data submissions to the IEA. One
    consideration could include the suggestion provided in DOE's comments to
    this report that the IEA use EIA miniquestionnaires and monthly
    submissions to generate preliminary U.S. data.

    4. In our report, we recognize that other IEA member countries also do not
    submit their data within the requested IEA time frames. We have modified
    language regarding U.S. data submissions to reflect additional information
    DOE has provided.

    Appendix V: Comments from the Department of Commerce

    Appendix VI: Comments from the Department of State

    Appendix VII: GAO Contact and Staff Acknowledgments

      GAO Contact

    Loren Yager, (202) 512-4347, yagerl@gao.gov

    In addition to the individual named above, Virginia Hughes, Assistant

      Staff Acknowledgments

    Director; Leyla Kazaz; Kendall Schaefer; Hugh Paquette; and Michelle Munn
    made key contributions to this report. Other contributors
    include Godwin Agbara, Karen Deans, Mark Dowling, Amanda Miller, and Anne
    Stevens.

    (320397)

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